Amendment of the double tax treaty between Switzerland and Germany for cross-border commuters and other cross-border activities

The draft of the planned amendments in the double tax treaty and the protocol was already prepared in 2023. In the meantime, the Swiss government prepared a report for the Swiss federal parliament. The parliament approved the amendments in March 2025, and the Swiss government was authorised to ratify the protocol. The amendments will, at the earliest, enter into force at the beginning of 2026.

Adopted rules for cross-border commuters

The protocol of changes to the double tax treaty with Germany includes several rules on the taxation of cross-border commuters (Grenzgänger), which were specified in memoranda of understanding or in consultation agreements. Part of these existing rules were slightly revised or amended and are now part of the protocol. With this step, they shall also become legally binding for courts in Germany, in particular.

A new rule is that the salary of employees on garden leave, shall be subject to taxation in the country where they would have performed their work if the employee had not been granted garden leave. If such employees are qualified as cross-border commuters, such qualification will be applied until the termination of the employment.

Another new or amended rule is that a regular return to the domicile is given if the employee travels on at least 20% of the agreed working days per calendar year from their domicile to their working place. Only if this occurs less frequently, in the case of permanent cross-border employment, will an employee (with a permanent place of work in one country and residence in another) not be classified as a cross-border commuter. In this case, the employee will be – depending on the specific situation – subject to taxation based on the number of working days in each country, or based on the qualification as a managing employee.

The qualification as a cross-border commuter is no longer given, according to the existing double tax treaty, if an employee does not return to their domicile for more than 60 working days per calendar year due to their employment. The method to count these non-return days was specified in detail in memoranda of understanding and an “introduction letter” from the year 1994. These rules have been partly revised and are included in the protocol of the double tax treaty. They specify, inter alia, the treatment of business trips, the change of employment, part-time employments, and employment activities on weekends and holidays.

Still applicable, is the rule that non-return days are only given if the return to the domicile is not possible or cannot be reasonably expected. A return is not reasonably expected if the one-way distance between the working place and the domicile exceeds 100 km or, if public transportation is used, and if the one-way travel time exceeds 1.5 hours (relevant is the means of transportation that is used). However, the assumption that a return to the domicile cannot be reasonably expected is not applicable if the employee returns nonetheless to his domicile.

As it might be of advantage for an employee with domicile in Germany that they do not qualify as a cross-border commuter under the double tax treaty, the method to calculate the non-return days deserves increased attention. One-day business trips in the country of the working place or the country of domicile, for instance, do not count as non-return days (this is different with one-day business trips in other countries).

Further amendments to the double tax treaty

It is also foreseen to update certain terms in the double tax treaty and the protocol, respectively, for instance the definition of the contractual states or the definition of an enterprise.

Several adjustments were made to comply with the wording of the OECD Model Tax Convention. This applies to the definition and the taxation of permanent establishments, for instance with respect to dependant representatives.

In the planned double tax treaty, it will be specifically stated that, with respect to the taxation of dividends, restructuring transactions will not be taken into account to determine the holding period of shares. If a merger, spin-off, or transformation of a company took place within a period of 365 days prior to the dividend due date, and shares were transferred at this occasion, the holding period of the transferring company can be counted as well. This is relevant if companies hold participations of 10% or more in a Swiss or German company, as the withholding tax on dividends can then be prevented after a holding period of 365 days.

It will also be clarified that taxpayers can only benefit from the double tax treaty in connection with dividends, interest, or royalties if they have a qualified right to use the respective assets. However, this reflects only the view of the Swiss Federal Supreme Court, according to which the right of use is implicitly required in any case in which benefits of a double tax treaty shall be applied.

As both Germany and Switzerland implemented the OECD-minimum tax (Global Anti-Base Erosion Model Rules, Pillar Two), the double tax treaty was also amended in this regard. According to a new paragraph added to the double tax treaty, Switzerland can levy the international supplementary tax, pursuant to Article 10 of the minimum taxation ordinance of multinational enterprises, on profits of permanent establishments with a low tax burden.

The double tax treaty was also amended with respect to dispute resolution mechanism and arbitration. These proceedings can be initiated if a taxpayer is subject to double taxation which shall be eliminated by the competent authorities of the two countries.

The protocol does not deal with any changes regarding the taxation of managing employees pursuant to Article 15, par. 4, of the double tax treaty. There is a consultation agreement, dated 6 April 2023, in connection with this issue. In this consultation agreement, it was agreed that Article 15, par. 4, shall also be applicable to employees in the management who have signatory power but are not registered with a specific function or, under certain circumstances, are not registered at all in the commercial register. This practice shall be continued at least until the end of 2027, according to a decision of the competent authorities of both countries in October 2025.

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