Employees working from home: permanent establishment risk?
Since the coronavirus pandemic at the latest, working from home has become an integral part of many companies. From a tax perspective, however, the question arises as to whether employees may establish a permanent establishment of the employer at their place of residence through their work. Nationally, this is of particular importance with regard to a possible trade tax split. Internationally, this can have a variety of effects, for example on the taxation of employees' wages or a possible (limited) corporation tax liability abroad.
New regulation of the AEAO
The tax authorities do not generally regard the employee's work in the home office as a permanent establishment of the employer. The main reason given for this in the AEAO is that the employer does not have sufficient power of disposal over the employee's home premises.
This should even apply in cases where
- the costs for the home office and its equipment are covered by the employer.
- a rental agreement for the employee's domestic premises is concluded between the employer (tenant) and employee (landlord), unless the employer is actually authorised to use the premises for other purposes in individual cases (e.g. through a right to send other employees to the premises or a right to enter the premises outside of occupational safety inspections).
- the employee is not provided with another workplace by the employer.
Only employees with "management functions" should be an exception.
The regulation in international comparison
Internationally, the OECD model commentary from 2017 contains explanations on the topic of home office permanent establishments. However, the model commentary is only a rough guideline, which is why many countries have adopted their own regulations. From a German perspective, the new AEAO should apply to all double taxation agreements.
The OECD model commentary defines significantly lower requirements for a home office permanent establishment than the AEAO. For example, a permanent establishment is to be assumed if the employee's work is carried out exclusively in the home office and no other workplace is made available to them.
Some countries have even lower hurdles for a permanent establishment. In Austria, for example, working from home for more than 25% of working hours is sufficient and in Poland, the provision of IT equipment by the employer is deemed to be a home office permanent establishment.
Practical consequences
The update of the AEAO is therefore a double-edged sword. On the one hand, the high requirements for a home office permanent establishment are to be welcomed from a national perspective, as they significantly reduce the permanent establishment risk in this area. On the other hand, however, companies in the international arena should not be lulled into a false sense of security. The assessment of possible foreign home office permanent establishments must, as before, be carried out in the respective country of operation and may therefore not be comparable with German standards. There is a risk of double taxation or a need for a mutual agreement procedure if the foreign country sees a permanent establishment that is not recognised in Germany in accordance with the AEAO.