On 21 January 2021 the OECD published on its website updated guidance on tax treaties and the impact of the pandemic.
The guidance sets out the views of the OECD Secretariat on the interpretation of tax treaty provisions, reflecting the general approach of jurisdictions and containing examples of how jurisdictions have addressed the issues arising from the impact of the pandemic.
This updates guidance first issued in April 2020 in relation to cross-border workers and individuals who were in a jurisdiction that was not their jurisdiction of residence. During most of 2020 and into 2021 unprecedented measures have been imposed by governments including travel restrictions and restriction or curtailment of business operations. The OECD guidance aims to provide more certainty to taxpayers for the periods where those health measures were applicable and to reflect the general approach by jurisdictions to the tax situation of individuals and employers.
The guidance looks at whether the analysis and conclusions set out in the guidance in April 2020 still apply when the circumstances continue for a significant period of time. Reference is made to country practice and guidance during the period.
Permanent establishments
Businesses need to know if employees working in jurisdictions other than the one where they normally work, and those working from home during the pandemic, could create a permanent establishment (PE) in those jurisdictions and give rise to new filing requirements and tax obligations there.
The OECD notes that the exceptional and temporary change of location of the employees due to the pandemic should not create new PEs for their employers. Also, the temporary conclusion of contracts in the home of an employee or agent during the pandemic should not create a PE for the business.
Where work is temporarily halted on a construction site owing to the pandemic, jurisdictions may consider stopping the clock in relation to determining if the threshold for creation of a PE has been met.
Home Office
A place must have a certain degree of permanency and be at the disposal of an enterprise if it is to be considered a fixed place of business through which the business of the enterprise is wholly or partly carried on and therefore constitute a PE.
If work is carried on at an individual’s home office it should not be concluded that the location is at the disposal of the enterprise. The carrying on of intermittent business activities at home does not make that home into a place at the disposal of the enterprise. A home office could be a PE if it is used on a continuous basis for carrying on the business of the enterprise and the enterprise has required the individual to carry on the enterprise’s business there.
Where an individual is working remotely at home due to public health measures this is an extraordinary event and not the enterprise’s requirement. It therefore would not create a PE for the business, either because it lacks a sufficient degree of permanency or because the home office is not at the disposal of the employer.
Agency PE
An agent’s activity in a jurisdiction is not to be seen as “habitual” if the agent is exceptionally working at home due to public health measures imposed or recommended by a government. It would therefore not constitute a dependent agent PE provided that the person does not continue the activities after the pandemic measures finish.
