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30 Aug 2022
BY Arnaaz Camay AND Ntokozo Zwane

Tax implications of remote working arrangements – OECD guidelines

Due to the impact of the COVID-19 pandemic, governments imposed restrictions on individual travel. This resulted in many companies changing their work model to accommodate employees working from home. The effect of this change was fewer employee relocations and employees being given an opportunity to choose their home base for work that could be performed remotely.

Several cross-border tax issues arose from the government-imposed restrictions. In April 2020, the OECD published a set of guidelines to address the issues identified. The continued imposition of these government restrictions resulted in revised guidelines being published by the OECD in January 2021. The guidelines contained an analysis of whether the conclusions reached in April 2020 would continue to apply for an extended period of time.

The revised guidelines addressed among others, the application of the existing rules related to the risk of the creation of a fixed place of business permanent establishment (“PE”). The general definition of a permanent establishment is a fixed place of business through which the business of an enterprise is wholly or partly carried on. An analysis of this definition shows that:

  • there must be a place of business;
  • the place of business must be fixed, ie., 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, the employees home does not create a PE for the enterprise. 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. If it is clear from the facts and surrounding circumstances that the enterprise has required the individual to use that location by not providing an office, for example, then it is likely that individual’s home office may be considered to be at the disposal of the enterprise.

The creation of PE has significant consequences for enterprises and given the rapid move towards remote working, these OECD guidelines may well be required to be revised further in future to be apposite to the “new normal” .

Arnaaz Camay
Executive | Tax

Ntokozo Zwane
Candidate Legal Practitioner | Tax

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