23-06-2021
This new virtual environment amplifies existing corporate tax challenges.
“Work anywhere, together” can create permanent establishment risk
Following the COVID-19 crisis, both working standards as well as employees’ expectations have changed. It is now more common for employees to work remotely from their home or even their second home (which may be located in another canton or even abroad). This situation can lead to tax risks for the employer as it could constitute a tax presence in the employee’s location for the company. Such a taxable presence, called Permanent Establishment (PE), could lead to additional corporate income tax and compliance obligation for the employer.
As employees are looking at ways to "work anywhere" companies must manage the complexities of a remote and mobile workforce. This new virtual environment amplifies existing corporate tax challenges and creates issues as employees work outside their normal tax jurisdictions on a longer-term basis.
Vincent Thalmann
Partner, Location Leader Geneva, Head of Corporate Tax Western Switzerland
KPMG Switzerland
Risks arising from a taxable presence
In Switzerland, this risk is of particular importance due to the possibility to create permanent establishment from one canton to another. This results in companies not only having to consider employees working from other countries but also working from other cantons.
Organizations could be facing significant risks regarding tax compliance and, independently of this, the extent to which a company allows remote work. Having employees who work remotely for an extended amount of time poses the risk of establishing a taxable presence (i.e. PE) in that location. As there is a risk that the tax authorities will apply the existing tax laws more strictly, it is important to identify and manage the corporate (and individual) tax risks linked to working remotely rather sooner than later.
In this respect, if employees work remotely (either from a home office of from another location or jurisdiction other than their designated workplace at the company’s domicile or at an already existing permanent establishment), the company may face the following exposures:
- Establishment of a taxable presence for the company at the home office location;
- Additional tax burdens;
- Compliance obligations;
- Administrative work around claiming relief from double taxation if the home office location is in another canton or country.
Therefore, it is now necessary for companies to identify these risks pro-actively and to mitigate them as they could impact a company’s tax liabilities as well as its tax burden significantly.
Fiscal implications are evolving
Swiss and foreign tax practices in terms of PE creation due to remote work might evolve in the future and will require monitoring. Most of the companies will have to draft, amend or enhance their internal guidance in order to provide a framework in which employees can work remotely without triggering a PE risk for the company.
Based on our experience, because there are many stakeholders concerned at company level (Finance, HR, Tax (TP and CT), Legal), they are not always aligned, which only adds to the complexity. Only a holistic, coordinated and aligned approach within a company will enable a successful mitigation of tax (PE) risk and provide an answer to the growing demand for national and international remote working possibilities.
Watch this space for more updates on tax authorities’ practices trends on this subject.
Learn more: Work anywhere, together - Corporate Tax (Factsheet, PDF)