In the worst-case scenario, commuters risk being taxed both in the country where they worked before the borders were closed and in their country of residence for the period they have had to work from home. Under the Nordic Tax Treaty, tax already paid in one country is deducted from the amount due in another, but there is always a risk of paying more in the end, depending on the situation of the individual involved.
The problem of double taxation was discussed in depth at the meeting of the Committee for Growth and Development in the Nordic Region on 25 May. The committee members were deeply concerned about the potential tax consequences for cross-border commuters.
“We, as Nordic politicians, must tackle this issue. It would be unacceptable to put our citizens in such a situation. The national finance ministries need to come up with a solution before people have to submit their 2020 tax returns,” says the committee chair Pyry Niemi.
The governor of Skåne, Anneli Hultén, has looked into the matter and written a letter to the Swedish Minister of Finance. She estimates that the tax issue could affect 18,500 commuters in the Øresund Region, 90% of them Swedes who commute to Copenhagen. Similar problems exist along the borders between Sweden and Norway, and Sweden and Finland.
Under the agreement between the Nordic countries, cross-border commuters pay tax in the country where they work. Since Denmark, Norway and Finland closed their borders as part of efforts to control COVID-19, Swedish employees, in particular, have been forced to work from home, which presents a problem. Where exactly are they working? And in which country should they pay tax?
This is an extraordinary situation, which makes it difficult to anticipate the consequences for individuals. We urgently need to find a clear solution that ensures people are not caught in a tax trap
One section of the “Øresund Agreement” specifies that employees can spend 50% of the time working at home over a three-month period. That time window is now running out. It is also unclear whether this rule applies in this situation if employees have been working 100% at home since mid-March – or have been unable to work at all.
“This is an extraordinary situation, which makes it difficult to anticipate the consequences for individuals. We urgently need to find a clear solution that ensures people are not caught in a tax trap,” Pyry Niemi concludes.