In the wake of the COVID-19 pandemic, the rise in remote work has heightened the risk that companies may be deemed to have a permanent establishment (PE) in jurisdictions where employees regularly work from home, potentially triggering corporate tax filing and other registration/compliance obligations.
To address these developments, the OECD has recently updated the commentary to Article 5 of the Model Tax Convention, providing additional guidance on remote work and PE exposure. The revised commentary introduces a 50% threshold: if an employee performs their duties from a location for more than half of their time over any rolling 12‑month period, that location may constitute a fixed and permanent place of business.
A home office will only be considered a PE if both of the following conditions are met. First, the activities conducted from the location are not merely preparatory or auxiliary in nature, taking into account the anti‑fragmentation rule. Second, the location qualifies as a genuine “place of business” for the employer, which requires a commercial rationale for the employee to operate from that jurisdiction.
For arrangements exceeding the 50% threshold, the introduction of the “commercial benefit” concept adds interpretative complexity. Even modest commercial benefits associated with the employee’s location could, in some cases, place a remote working arrangement within a PE grey zone. It is important to note that the update only focuses on the fixed place of business PE concept, meaning that the dependent agent PE concept remains applicable as it was.
Multinational groups should also consider country‑specific positions. Several jurisdictions have entered reservations to the updated commentary, and some — such as Belgium — apply a domestic PE concept that is broader than the OECD Model’s Article 5. This can trigger registration and compliance formalities irrespective of the OECD analysis. It will also be important to determine from which date individual countries may apply the updated commentary, mindful of the debate on static versus dynamic interpretation.
In light of this evolving guidance, we recommend that organisations:
- Review their global mobility and remote work frameworks,
- Monitor cross‑border working patterns,
- Assess tax consequences under the revised commentary to mitigate unexpected PE exposure. In Belgium, for example, remote arrangements could create a PE with corporate tax and compliance implications. Cross‑border remote work may also raise related issues, including immigration, payroll withholding, and social security obligations.
Each situation requires case‑specific analysis. Our specialists can help you evaluate your risk profile under the updated OECD commentary, navigate local deviations and interpretations, and design practical, compliant remote work, and global mobility policies.
For more insights and to understand the implications for your organisation, please contact Tim Pieters or Dennis Matthijs.
