Employees Working from Home: New Legal Guidance Issued on PE Risks

On May 13, 2022, the Swedish Tax Agency published a new statement (sw) regarding when an employee's work from home gives a foreign company a permanent establishment in Sweden. The Swedish Tax Agency thus replaces its previous statement from 2015 on when an employee’s work from home leads to a permanent establishment and now attaches greater importance to whether there is an implicit requirement for the employee to work from home. The statement also consists of several examples where the Swedish Tax Agency assesses whether a permanent establishment arises or not. The result of the statement is that permanent establishments arise in fewer situations compared with the statement from 2015. 

In order for a permanent establishment to arise, it is required that the company has a place at its disposal, which could be a home office. On the other hand, it is not enough for an employee to work from home for the home to be considered to be at the company’s disposal, but greater importance is attached to whether the company requires the employee to work from home or not. The decisive factor is therefore whether the company is considered to have an implicit requirement on the employee to work from home. An implicit requirement could be that the company does not provide an office to the employee despite that the work requires an office. Circumstances that are considered in the assessment are whether there is any advantage for the company that the work is performed in Sweden or if the company has, e.g., customers in Sweden that the employee works for and if there is any connection between the company's activities and the geographical location. Another important circumstance is if it is an important condition for the employee's tasks that they are performed in Sweden.

A situation where work from home cannot be considered to take place because of a requirement from the employer is when the work from home is because of regulatory restrictions to prevent the spreading of diseases as was the case during the covid-19 pandemic.  A permanent establishment does not arise in such a situation. 

If the work at home is a result of the employee's own wishes and there is no commercial interest for the company, the home is not considered to be at the company's disposal. This does not change if the work from home is regulated in the employment contract or if the company has accepted the work from home. An example which the Swedish Tax Agency has taken from the comments in the OECD's model convention is a cross-border worker who performs most of the work at home instead of at the company's office in the company's home country. Even if there is no commuting distance between the home and the office, the same principles are applied and a permanent establishment does not arise, provided there is no interest or benefit for the company that the work is carried out in Sweden.

The statement from the Swedish Tax Agency is welcome because it partly clarifies in which situations a permanent establishment does not arise as a result of work from home, and partly because the statement has been adapted to the OECD's comments on Article 5 of the 2017 model convention. It is also positive that a permanent establishment now arises in fewer situations than before.  Please note that the statement is the Swedish Tax Agency’s view and represents only the Tax Agency’s interpretation of the law.

An analysis of all relevant facts and circumstances should be made on a case-by-case basis to conclude whether a permanent establishment should be deemed to exist or not. We at KPMG would be please to assist with any permanent establishment analyzes, so do not hesitate to contact us if you have questions or want to discuss.

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The article in Swedish

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