New Permanent Establishment Decree: Greater Clarity for Modern Corporate Structures
National Definition of a Permanent Establishment: Clarifications with Practical Relevance
On June 18, 2026, the Federal Ministry of Finance (BMF) published a new circular on the definition and establishment of a permanent establishment under domestic and international tax law. The final circular largely corresponds to the draft previously submitted (blog post from March 19, 2026).
The circular contains practical explanations regarding the national definition of a permanent establishment. While the BMF confirms that, in particular, fixed location, fixed duration, and power of disposal may interact with one another within the framework of an overall assessment, it also explicitly clarifies that each element must be satisfied individually. The overall assessment therefore does not replace the examination of the individual requirements.
The clarification regarding temporal permanence is also of practical significance. While the draft still assumed a duration of “more than six months,” the final version stipulates that a connection to the earth’s surface lasting at least six months is sufficient. This means that in the future, exactly six months—for example, the term of a lease agreement—may also be sufficient.
At the same time, the decree emphasizes the distinction between national and treaty-based assessments. First, pursuant to Sections 12 and 13 of the German Fiscal Code (AO), it must be determined whether a permanent establishment or a permanent representative exists; only then does the question of a limitation under a double taxation treaty arise. This order of assessment remains particularly relevant when no permanent establishment exists under treaty law, such as for income tax purposes.
Activities in Third-Party Premises and Management Structures
The decree also clarifies the case law regarding activities in third-party premises. Merely working in the premises of a customer or business partner is generally not sufficient. At the same time, however, it is clear that a permanently assigned specific desk is not required: Under certain conditions, even a desk-sharing model may suffice if the company has reliable access to a suitable workspace and this reflects a sufficient degree of integration of its own business activities.
The comments on the “management permanent establishment” are also of considerable practical significance. The Federal Ministry of Finance (BMF) emphasizes that the center of senior management can, in principle, be located in only one place. What is decisive here is not every individual management decision, but rather the location where the essential day-to-day management decisions are actually made. For managing directors operating across borders and international management structures, this remains a key area of risk.
Working from Home: Distinguishing Between the National and Treaty-Based Perspectives
The statements regarding the “work-from-home” permanent establishment have received the most attention. The circular first confirms the previous national perspective: The mere fact that an employee works from home does not, as a rule, constitute a permanent establishment for the employer. The decisive factor is, in particular, the question of control over the private premises.
The situation is different at the tax treaty level. Here, the Federal Ministry of Finance (BMF) adopts the OECD principles published in 2025 (blog post from December 4, 2025). According to these principles, a home office should generally not be considered a permanent establishment if less than 50% of working hours are performed there within a twelve-month period. If this threshold is exceeded, it depends on whether the work is performed in the respective country for business reasons or is based solely on the employee’s personal preferences.
This is particularly relevant for German companies with employees abroad. The circular shows that the tax authorities are adopting these OECD guidelines, at least for assessing home office situations in the context of double taxation agreements.
OECD Commentary: More Answers, but Not Everywhere
Perhaps the most interesting statement in the circular does not concern working from home itself, but rather the use of the OECD Model Commentary. The Federal Ministry of Finance (BMF) explicitly describes the new OECD guidance on working from home as “clarifying” and declares it to be authoritative for interpretation “at the time of application.”
From this, it can be inferred that the tax authorities apparently intend to take these OECD assessments into account even in the case of existing double taxation treaties and—as in the past—advocate for a dynamic interpretation of the OECD Model Commentary. This is an important statement for practical purposes.
It remains unclear, however, whether this approach is also intended to apply to other areas of permanent establishment law. In numerous places, the BMF also refers to the OECD Model Commentary, without, however, explicitly explaining from what point in time and for which DTAs the respective OECD positions are to be decisive.
Agent Permanent Establishments, Construction and Assembly Permanent Establishments
The statements regarding agent permanent establishments are disappointingly brief. Although the BMF clarifies that the permanent representative under § 13 of the German Fiscal Code (AO) and the representative permanent establishment under Art. 5 of the OECD Model Agreement are not identical, it remains unclear whether the more recent OECD interpretations regarding the “leading role” in the conclusion of contracts should also apply to older DTAs or only to agreements that have expressly adopted this wording.
Further important clarifications concern construction and assembly permanent establishments. Of particular note is the statement that the mere and exclusive supervision of construction or assembly generally does not constitute a permanent establishment. In addition, the circular specifies the requirements for combining multiple projects.
The anti-fragmentation clause is also addressed in greater detail for the first time. It is intended to prevent companies or affiliated companies from artificially dividing their activities among several entities or fixed places of business in order to carry out only preparatory or auxiliary activities in each case and thus avoid the creation of a permanent establishment under the treaty. In this regard, the Federal Ministry of Finance (BMF) emphasizes the overall economic assessment: Under certain conditions, the split activities must be evaluated collectively. At the same time, the clause applies only if the respective double taxation treaty actually contains a corresponding provision.
Conclusion
The new permanent establishment circular provides greater structure and guidance in many areas. Particularly relevant are the clarifications regarding the national definition of a permanent establishment, activities conducted on third-party premises, management structures, as well as home office and representative arrangements. At the same time, the circular demonstrates that permanent establishment risks today extend far beyond traditional branches. However, important questions regarding the temporal applicability of new OECD guidelines remain unanswered. It is precisely in this area that the BMF could have provided additional legal certainty in some instances.