New OECD guidelines on permanent establishments and remote work

Amongst the key changes are updates made to the commentary on Article 5, addressing permanent establishments and remote work. The amendments clarify when remote work across borders, such as from a home office, creates a taxable presence for a business. This responds to the rise in such arrangements following the COVID-19 pandemic. 

The updated commentary introduces a ”50% of total working time”-benchmark to assess when a home office can constitute a fixed place of business.

• Less than 50% remote work: If an employee works from home for less than 50% of the total working time over a twelve-month period, it is generally not considered to create a permanent establishment for the company.
   
• More than 50% remote work: If the working time exceeds the 50% threshold, this does not automatically result in a permanent establishment, but a deeper analysis of the circumstances is required. A prominent consideration is whether there is a commercial reason for the activities to be carried out at the relevant location. Determining whether a commercial reason exists requires an assessment of the enterprise’s business and the extent to which the employee’s specific activities relate to that business. 
   

These amendments are broadly consistent with the Swedish Tax Agency’s public statement dated 13 May 2022, which emphasises the need to consider whether the company has an interest or benefit in the work being carried out in Sweden. However, the Tax Agency’s statement does not include the 50% threshold introduced by the OECD.

To date, the Swedish, Norwegian and Danish Tax Agencies have not updated its guidance to reflect these OECD changes. We are monitoring developments closely. If you have any questions, please feel free to contact Schjødt’s tax lawyers.