The six-month rule and force majeure (the coronavirus outbreak)

Background

The Finnish Ministry for Foreign Affairs has recommended that everyone should avoid all travelling to the city of Wuhan and the Hubei province due to the coronavirus epidemic. A number of airline companies have informed travellers of cancellations of their scheduled flights to China. It may be that all flights from Finland and Europe to China and back are soon to be cancelled for a temporary period.

Is the coronavirus epidemic a force majeure within the meaning of § 77 of the act on income tax (Tuloverolaki 1535/1992) that could make the six-month rule applicable on the tax treatment of an individual taxpayer even if he or she spends more days in Finland than the maximum number of days that can be spent in Finland under the six-month rule? What territories does the issue concern?

If there is a temporary cancellation of all flights from Finland or Europe to China and this makes it difficult for an employee to return to China after visiting Finland, would that, as well, be a situation where the force majeure can be referred to as provided in § 77 of the act on income tax?

Background information

Employment income (=wages, salary) is not taxed in Finland if the following requirements under the provision of the act on income tax known as the “six-month rule” (§ 77) are fulfilled: The employment income, received from work performed outside Finland, is not subject to Finnish taxation if the wage earner stays in a foreign country for reasons relating to the work for an uninterrupted period of at least six months. A further requirement is that the provisions of the tax treaty signed between the foreign country and Finland confer the primary right to tax wages on the foreign country where the work is done (or that there is no tax treaty in force), and that the length of time that the wage earner spends in Finland does not, on the average, exceed six days per month of work abroad.

The provision of the act on income tax contains an exception that refers to a situation of force majeure. It is not seen as an interruption if the wage earner must return to Finland for a reason that is unexpected, serious, and unrelated to the employer or employee, on the condition that the wage earner eventually goes to the foreign country again in order to continue working outside Finland. In addition, the provision outlining the exception allows for the possibility that the wage earner must discontinue the performance of work outside Finland due to a force majeure.

In the detailed guidance released by the Tax Administration, Taxation of work abroad, the outbreak of an epidemic disease is cited as an unexpected change in circumstances in the country where the wage earner works, amounting to a force majeure (section 4.2.3 of the guidance).

The Tax Administration’s statement

Taking into account that the Ministry for Foreign Affairs has asked the public to avoid all travelling to a certain territory because of an epidemic disease, this must be regarded as a situation of force majeure referred to in § 77 of the act on income tax. The geographical area where such a situation prevails is the same area that the Ministry for Foreign Affairs has referred to when issuing its warning.

If an individual wage earner’s total count of days spent in Finland exceeds the threshold set out by relevant tax rules, during a period when he or she is expected to work in a foreign country, and the reason for this is that the work is to be done inside the geographical area that the Ministry for Foreign Affairs has warned about, the tax authority will consider it a situation of force majeure in accordance with the act on income tax. At the same time, however, the six-month rule cannot be applied unless the foreign country where the wage earner works continues to have the right to tax the wages earned for work performed in that country. In addition, it is important to note that the tax-exemption accorded by the six-month rule does not apply to any work done in Finland because the rule only concerns work carried out in foreign countries. For this reason, any wages received by the wage earner for work done in Finland is taxable income in Finland except for only a few days of such work that are regarded as part of the individual employee’s work assignment in the foreign country (for more information, see Taxation of work abroad, section 4.2.2 and section 4.4.3).

The employer and the wage earner must make the necessary checks in order to ascertain whether the legal provisions on the six-month rule allow for the tax-exemption in circumstances where the threshold of days spent in Finland is exceeded because of warnings against foreign travel. The length of time when the force majeure is deemed to apply is the same as the period of validity of the warnings issued by the Ministry for Foreign Affairs.

If the wage earner must remain in Finland because flights between Finland or Europe and China are cancelled, the wage earner’s count of days spent in Finland may exceed the maximum days allowed by the six-month rule. This is deemed as a force majeure up until the time when flights to China are resumed. In circumstances where airlines have cancelled their scheduled flights, the geographical area where the force majeure applies may be extended to other territories than those referred to by the Ministry for Foreign Affairs.