The Covid-19 pandemic has had a significant impact on the way businesses operate. Many companies have had to change their work model to accommodate employees working from home. This has resulted in fewer employee relocations and employees being given an opportunity to choose their home base for work that can be performed remotely.
However, there are a number of cross-border tax issues that have arisen from this change in work model. In April 2020, the OECD published a set of guidelines to address these issues. The continued imposition of government restrictions has resulted in revised guidelines being published by the OECD in January 2021.
These guidelines are important as they provide clarity on how businesses should operate in a time of global pandemic. They also provide guidance on how to deal with cross-border tax implications arising from employees working remotely.
If you are a business operating in multiple countries, it is important to familiarise yourself with these guidelines. This will help you to avoid any potential tax issues and ensure that your business can continue to operate smoothly in these difficult times.
- There must be a place of business;
- The place of business must be fixed, i.e., it must be established at a distinct place with a degree of permanence; and
- The person should carry on the business of the enterprise through the fixed place of business. This implies that if a business is carried on separately by the person in circumstances where it is not linked to the fixed place of business, there will be no permanent establishment.
The revised guidelines confirm that an exceptional and temporary relocation in the employee’s work location to, for example home does not create a PE (permanent establishment).
If, however, the individual continues to work from home after the government-imposed restrictions have ceased, the tests to establish whether a PE exists as a result of the employee’s home office is whether there is a certain degree of permanency and whether the premises are at the disposal of the enterprise to carry on its business activities. If both tests are met, then a fixed place of business PE risk arises.
An individual’s home office would be considered to have a certain degree of permanence, but this will not, in itself, create a fixed place of business PE unless it is found that the home office is at the disposal of the enterprise.
The increasing popularity of remote working has led to a rethink on how companies should be run. The need for revision may follow soon enough as new guidelines are released by the International Organization For Standardization (OECD).