Originally published: February 2024
If someone works from a home office in a different country than their employer, can that trigger a permanent establishment (PE) subjecting the employer is to corporate tax? I’ve written on this countless times (see here: https://lnkd.in/em6mvyxX) and it’s a grey zone. Some people would really like such working arrangement, but given the tax risks involved, their employers mostly say ‘no’. The tax risk also stops them from recruiting staff base abroad.
This article from Isabelle Panis and Rik Baete (https://lnkd.in/emHT3rkH) provides the most comprehensive and detailed assessment yet of this question. It spans 48 pages, has 451 footnotes and considers case law, guidance and articles from a dozen of countries. It has three downsides: it’s paywalled (so paywalled that LI doesn’t even preview the link, so we’ll use this song instead: https://lnkd.in/eNENDkF8), it’s in Dutch and it’s from 2022.
The article considers a range of fact patterns, but let’s zoom in on the employee working from a room in their home which happens to be abroad. If the employee does not undertake any principal role in relation to contracts (i.e. it is not a dependent agent), it comes down to whether the home office creates a PE as “fixed place of business (…)”.
The room is a fixed place, but the employer would still only have a PE, if the fixed place is at the disposal of the employer. The authors go through a list of relevant indicators. In the situation just described, almost all of them indicate that the room is not at the employer’s disposal (and therefore, there’s no PE). That is because:
1. the room is at the employee’s disposal, was arranged for by the employee and the employee can change the place of work at any time (if they desire to do so)
2. the employer did not require the employee to use this particular fixed place
3. the place of work was decided by the employee’s personal preference and the employer does not have a commercial interest that work is performed in that particular location
4. the employer doesn’t pay for the room (or any adjustments to the room)
5. no externally visible signs are attached to the room that signify the employer’s name and
6. the employer does not perform leadership or managerial activity from the room.
The only indicator that this example fails is:
7. work is performed there only intermittently. This indicator by itself is not sufficient to conclude there is a PE.
So, are we all good then? Can the work from anywhere revolution begin? No, not really. The article concludes that a good administrative preparation and follow up is “the best advice”. In other words, employers need to be quite careful, document everything, probably get advice and update it for every remote worker. Does the potential benefit of a remote worker sufficient to justify the time, effort and cost of all that?
Obvious disclaimers: this is not advice. These views are my own and do not necessarily represent my employer.
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