Part 4 – New International Assignment Models Increase Tax Complexity

Author: Norma Reynov , CONVINUS global mobility solutions

For the German version, please read here >>

Traditional assignments are no longer the norm

In the past, things were often straightforward. An employee was assigned abroad for two or three years, typically with their family. The children attended an international school, the employee had a classic assignment contract, and the family only returned home for their annual home leave. For the duration of the assignment, the employee's tax residency shifted abroad, and payroll followed a more or less established assignment process. Of course, there were always exceptions, but clearly structured long-term assignments were far more common than they are today.

Well-defined short- and long-term assignments were especially standard in large companies with formal global mobility programs. But today, such models are increasingly rare. Changing personal realities, the growing demand for flexibility, and evolving business needs have made international assignments more complex and often fragmented, commuting-based or hybrid in structure.

Tax complexity increases with non-traditional assignments

A practical example illustrates this complexity. A Swiss company assigns an employee liable to Swiss withholding taxes to the United States, but not for a continuous period. Instead, the employee alternates between three months in the US and three months in Switzerland over the course of two years. From an operational standpoint, this model offers clear advantages. Knowledge transfer is maintained, collaboration between teams in Switzerland and the US is strengthened, and the family remains more stable.

However, from a tax perspective, this setup presents a wide range of challenges. The employee will likely become tax liable in both countries. To avoid double taxation and to manage tax payments correctly in both jurisdictions, the company will need to assess the situation carefully from both the Swiss and US tax perspectives.

Such fragmented assignments with regular cross-border switches can quickly become a tax risk. In many cases, companies lack both the internal expertise and the processes needed to manage these scenarios reliably. Still, these types of assignments can be handled correctly and in compliance with applicable laws, provided that companies seek appropriate external guidance and plan accordingly.

Commuter assignments between two countries

Another example shows how complex the tax situation can be even in seemingly simple commuter assignments. A Swiss company assigns a managing director to its German subsidiary for two years. He works three days per week in Germany and two days per week in Switzerland. His Swiss employment contract remains in place, and his full salary continues to be paid from Switzerland.

From a business perspective, this arrangement makes sense. The managing director stays connected to the Swiss parent company while leading the German operations on-site. Tax-wise, the situation may appear simple but is still special. Due to his executive role for the German company, the applicable double tax treaty between Germany and Switzerland assigns full tax liability to Germany, even for workdays spent in Switzerland. Since the overall tax burden in Germany is considerably higher than in Switzerland, the employer typically compensates for the difference through a tax equalization or similar mechanism.

For HR and payroll, the key question is how to implement this model accurately and efficiently. Although salary continues to be processed through the Swiss payroll, a German payroll will also be required to withhold and remit income taxes correctly. This calls for close coordination between the internal Swiss payroll and a (potentially external) payroll provider in Germany.

All parties should be aware that, even if the tax allocation is relatively straightforward (with full taxation in Germany), the actual payroll implementation often is not. Regular and proactive alignment between all involved stakeholders is essential to ensure proper administration and compliance.

Conclusion

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.