The discussion on whether remote working could generate a permanent establishment (“PE”) dates back to 2012, when the OECD first suggested that an example covering a “home office” should be included in the commentaries (see here).
The pandemic boosted discussions on the topic, as companies adapted to the fact that workers were working remotely for sanitary/travel restrictions, leading to their businesses being conducted beyond borders. The OECD secretariat issued guidance on the impact of COVID-19 on (among other things) the PE risk (see here), emphasising the exceptional and temporary circumstances that justify a mitigation of the criteria that could lead to the creation of a PE.
After the pandemic, remote working is no longer imposed by temporary restrictions: it is becoming a new standard. Remote working is embedded in the work-life balance policies around the globe and workers remain outside the country of residence of their employers by choice, rather than in the interest/instructions of the employer. Remote workers may develop part of the company’s core activities, even if there is no intention of the company to carry out a business in that specific location. The challenge regarding the new norm created by remote working “for the benefit of the worker” is not solved by the methodology suggested by the OECD commentaries, international doctrine or case law.
Portugal has been a successful destination for digital nomads, but also for individuals seeking a good quality of life (considering the country’s education and health infrastructure and the tax benefits available for individuals, such as the non-habitual residents’ regime). In the absence of guidelines from the Portuguese tax authorities, we have been increasingly asked to perform PE risk assessments by companies that become aware their staff are working from Portugal – like in many other jurisdictions.
To mitigate a PE risk for foreign companies, we have performed a case-by-case analysis and have recommend some defensive measures to reduce the risk of a PE:
Irrespective of the above, global mobility should be addressed from a comprehensive and harmonised perspective at the OECD and EU level, and eventually future tax disputes will help to clarify how tax authorities and tax courts interpret the matter.
With this newsletter, we inform multinational companies on changes in international tax law and country-specific tax law developments with respect to cross-border transactions.
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