Teleworking and its taxation

Teleworking and its taxation

The advance of new technologies, accelerated if we take into account the health crisis caused by COVID-19 in 2020, has made it possible for the worker to carry out their functions in the teleworking modality without having to go to the offices daily and this has become the usual way of providing work for many companies, although, How does teleworking affect from a tax point of view?

On July 10, 2021, the Official State Gazette published the Law 10/2021, of July 9, on remote work that came to regulate a legal framework and to respond to many aspects in relation to this figure. However, this legislation regulates teleworking from a purely labor point of view: work-life balance, flexibility, digital disconnection, equal treatment, etc., also having its pros and cons.  

However, the tax treatment teleworking is not definitively clear and has created a new paradigm in this matter: Can the material delivered by the company be considered remuneration in kind? Where does a resident who works for a non-resident company pay taxes? Is the tax applicable? deduction for international double taxation? Is it mandatory to practice withholding? What happens with the exemption from article 7.p of the LIRPF?

• Worker resident in Spain who teleworks for another company that is also a resident.

Let us remember that, for a person to be tax resident in Spain, it must comply with the provisions of article 9 of the Personal Income Tax Law 35/2006 which establishes that the taxpayer will have his habitual residence in Spanish territory when any of the following circumstances occur: they remain in Spanish territory for more than 183 days during the calendar year; or that the main core of its economic interests or activities is located in Spain, directly or indirectly.

Taxation

That said, if a person is a tax resident in Spain and works for another company that is also a resident in the teleworking modality, the taxation of the income generated by this employment relationship would be clear that are taxed in Spain.

However, in the teleworking modality, different singularities:

In relation to the equipment delivered by the company To the worker who carries out his activity remotely, the DGT has established that “there is no remuneration in kind when the company makes available to the worker the machines, supplies and tools owned or owned by the company necessary for him to carry out his work” in his Binding Consultation V0150-22 of January 31, 2022.

To access the news from CINCO DÍAS in relation to this Binding Consultation of the DGT, click here.

On the other hand, in relation to the Food coupons and its taxation as income in kind in the teleworking modality, the DGT has issued Binding Consultation V1035-21 of April 21, 2021, understanding that we are faced with an income in kind exempt up to the limit of 11 euros per day.

• Worker resident in Spain who teleworks for a non-resident company.

From the European or international point of view, the figure of teleworking generates greater insecurity not only from the fiscal point of view, but also from the immigration, labor or social security point of view, as CINCO DÍAS pointed out in a recent news.

In tax matters, the General Directorate of Taxes has issued various Binding Consultations where it analyzes these assumptions:

• In his recent Binding Consultation V2223-22 analyzes the case of a tax resident person in Spain who teleworks for a tax resident company in the Netherlands.

The DGT refers to the Double Taxation Agreement between both States to clarify that the income obtained by a resident in the other country will be taxed in the country of residence of the person who receives them, and must reside for more than 183 days.

Thus, the DGT establishes that “the income from dependent work derived from carrying out teleworking, from a private domicile in Spain, even if the fruits of said work are for a Dutch company and the consultant being considered a tax resident in Spain, when exercising employment in Spain, They will only be taxed in Spain”.

• Other Binding Consultations that may be of interest in relation to this matter are the V1162-22, May 26 and the V1265-22, June 6, where the DGT analyzes the teleworking situation of two tax residents in Spain who work for a company in the United Kingdom and the United States, respectively.

In these cases and as in the previous case, the DGT establishes that, as they are natural persons with their habitual residence In Spain, they will be subject to personal income tax and, therefore, are taxed on their worldwide income, regardless of where this income was generated and where the payer is established.

In the aforementioned Consultations, the DGT analyzes the situations from the point of view of current regulatory regulation, that is, applies and argues the Double Taxation Agreement between both nationalities according to the work income obtained and, in a subsidiary case, applies the internal regulations on tax matters.

• Would deductions be applicable to avoid international double taxation (DDII)?

The doctrine of the DGT in accordance with the Binding Consultations mentioned above establishes that the deduction for international double taxation will not be applied in teleworking situations. when taxation is exclusive in Spain.

For its part, if the income obtained can be taxed in the other state according to the CDI, for example, if you travel to another country to work for a few days in person, taxation can be shared and, therefore, the deduction may be applicable to avoid international double taxation, in accordance with what is established by the Convention itself to eliminate double taxation. For this deduction to occur, as is generally the case, the following must occur:

– The effective amount of what was paid abroad due to a tax of an identical or analogous nature to personal income tax.

– The result of applying the average effective tax rate to the part of the taxable base taxed abroad.

• What happens with withholdings in a teleworking situation between two countries?

It is in the already mentioned Binding Consultation V2223-22 where it is analyzed whether there is obligation to retain or not in accordance with teleworking situations.

For this to occur, there must be an obligation to withhold and an income subject to withholding, in accordance with article 75 (remember that the work performance They are income where there is an obligation to practice and withhold) and to article 76 of the RIRPF

Obligations

With respect to obliged to retain, the DGT establishes that "since, in this case, it is an entity not resident in Spanish territory (the company resident in Holland), said entity will have the obligation to retain whether it operates in Spanish territory through a permanent establishment or in case that it acts without a permanent establishment only with respect to the income from the work it satisfies or other income subject to withholding or payment on account that constitutes a deductible expense for obtaining the income referred to in article 24.2 of the consolidated text of the Law of the Non-Resident Income Tax (income derived from the provision of services, technical assistance, installation or assembly works derived from engineering contracts and, in general, from economic activities or operations carried out in Spain without the mediation of a permanent establishment).

• Could the exemption from article 7.p of the LIRPF be applicable?

The General Directorate of Taxes is clear in understanding that “the exemption of article 7.p of the LIRPF is not applicable to all work performance.

The expression “work” that appears in article 7.p must be understood as referring to the work performance defined in article 17.1 of the LIRPF (…).

Likewise, it also establishes that “the rule requires, in order to apply the exemption, that it be an income derived from work carried out for a company or entity not resident in Spain or a permanent establishment located abroad. To understand that the work has been effectively provided abroad, both a worker displacement outside Spanish territory, such as the workplace being located, at least temporarily, outside Spain.”

On the contrary, the consultant travels sporadically for work to the United Kingdom, so, in this case, the DGT establishes that “this requirement can be understood to have been met in relation to work actually carried out abroad. On the contrary, this requirement will not be met with respect to work carried out in Spanish territory. At the same time, it is necessary that the work be provided for a non-resident company or entity, or a permanent establishment located abroad.”

Based on all of the above, it can be established that the current legal framework, both nationally and internationally, may be feasible to resolve tax cases related to teleworking, but they are not sufficient to protect this figure. Teleworking can and does generate situations of legal uncertainty not always provided for in the regulations that, therefore, require a specific and updated regulation to the context in which we find ourselves to provide minimum guarantees to this new type of work that, if nothing fails, will continue to be an organizational reality and even a labor demand for certain positions.  

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