On 20 June 2022, the Ministry of Finance published a Circular (no. 2022-0.433.029 of 17 June 2022) clarifying various tax treaty issues that have arisen due to the COVID-19 pandemic, including permanent establishments(PE) and the application of the arm’s length principle.

With regard to the PE rules, the circular clarifies that working from home according to the OECD Guideline 2021 does not constitute a permanent establishment for the foreign employer, since the home office is the result of force majeure, i.e. the COVID-19 pandemic. However, the circular also makes it clear that home office work due to the COVID-19 pandemic does not terminate an already existing PE.

For construction sites, the circular stipulates that temporary work stoppages do not have to be excluded from the calculation of the general 12-month period for the existence of a construction site permanent establishment. The term “temporary” is not defined in the circular, but it is clarified that extended activities on the construction site resulting from measures to contain the COVID-19 pandemic are included in the calculation of the 12-month period.

In addition, the circular recognizes that the pandemic has created challenges for the application of the arm’s length standard. For this situation, the 2020 guidelines on the impact of the COVID-19 pandemic on transfer pricing can be used as an interpretative aid. Taxpayers wishing to invoke the 2020 OECD COVID-19 Guidance must provide documentation.