The task force stated that there is a considerable uncertainty when it comes to determining whether a home office in the employee’s country of residence can create permanent establishment (PE) and thereby trigger liability for the employer to pay corporate taxes to the country of the employee’s residence (For prior coverage, see GMS Flash Alert 2024-085, 12 April 2024.)
During the discussions about PE in a telework context, it became apparent that countries have very different approaches to the topic. In general, the issue was raised concerning implementing various interpretations of rules for PE that could lead to the creation of many “micro” PEs, something that ought to be avoided, the task force stated.
Telework ought to create a considerable value to the employer for it to be subject to corporate taxation; otherwise, there is a risk of many PEs with limited or no value being taxed. This sort of administrative burden around tax compliance could lead to no or very limited tax revenue – an undesirable outcome.
The task force then presented a recently concluded Dutch-Belgian Agreement that clarifies when telworking can trigger thecreation of PE.3
Main Features of the Agreement
- A worker who teleworks less than 50 percent of his/her working time in a jurisdiction does not lead to the creation of a material PE.
- Three types of telework are identified:
- Occasional teleworking (no PE creation);
- Structural teleworking with a possibility of working onsite (no PE creation);
- Structural and compulsory teleworking constitutes a PE (use of the home office on a continuous basis and the employee is required to work from home).
Here, the task force clarified that “required work from home” includes situations in which the employer no longer provides sufficient office space for all workers, so the worker in fact does not have free access to the employer’s premises, and situations where the worker lives so far away from the employer’s premises that the worker cannot use office premises regularly.
Further, the task force highlighted that the OECD should update its commentary on the model convention4 and extend its description of “work from a home office” to include teleworking that is more than something a worker often uses “only for preparatory and auxiliary activities.”