On 7 April 2020 the OECD published on its website guidance on tax issues relating to cross-border workers during the crisis.

As a result of travel restrictions and quarantine requirements many cross-border workers cannot go to the country where they normally work and must stay at home teleworking. Some cross-border workers may have been laid off due to the economic circumstances.

This situation gives rise to a number of tax issues, including the problem faced by cross-border workers, or by individuals who may be stranded in a country that is not their normal country of residence. These problems affect the taxing rights of the countries concerned, as outlined in tax treaty rules setting out the relevant taxing rights.

Countries must cooperate to ensure that the problems and potentially significant compliance and administrative costs for employees and employers are kept under control. Countries must coordinate their efforts to deal with any unplanned tax implications and compliance burdens resulting from measures taken in the COVID-19 crisis.

Permanent establishment

A permanent establishment (PE) should have a certain degree of permanency and be at the disposal of an enterprise if it is to be regarded as a fixed place of business through which the business of that enterprise is wholly or partly carried on. The carrying on of intermittent business activities at the home of an employee does not mean that the home is at the disposal of the enterprise. The home would need to be used on a continuous basis for carrying on business of an enterprise and the enterprise would have to require the individual to use that location. Teleworking from a home office would not create a PE for a business or employer because such activity lacks a sufficient degree of permanency or continuity. Also the enterprise has no access to or control over the home office.

Agency PE

Generally an agency PE of the company would not be created in the home country of the teleworking employee. An employee’s activity in the home country is unlikely to be regarded as habitual if that employee is only working at home in that State for a short period.

Construction site

Activities on many construction sites are being temporarily interrupted by the COVID-19 crisis. The period during which activities are interrupted should however be included in calculating the length of time the site continues and will affect the determination of whether the construction site constitutes a PE.

The Commentary to the OECD Model Tax Convention explains that a construction site should not be regarded as ceasing to exist when work is temporarily discontinued, and temporary interruptions should be taken into account in deciding the length of time the construction site continues.

Tax residence of companies

Guidance is also given in relation to the tax residence of companies if their management has to be carried out in another country owing to travel restrictions. The guidance looks at the implications for companies if cross-border employees must stay in their home country and work from home. The view of the OECD is that such circumstances should not affect the tax residence of companies under tax treaties.

Other

The OECD guidance also covers tax and residence issues of individuals who are normally cross-border workers and are teleworking during the crisis.