OECD Analysis of tax treaties and the impact of Covid-19

OECD Analysis of tax treaties and the impact of Covid-19

Per request of concerned countries, OECD has provided guidance on various elements concerning treaty applications in regards to the impact of Covid-19. A number of relevant items are covered. Below, we highlight some of the main takeaways from the analysis.

Permanent Establishment

“(…)it is unlikely that the COVID-19 situation will create any changes to a PE determination. The exceptional and temporary change of the location where employees exercise their employmentbecause of the COVID-19 crisis, such as working from home,shouldnot create new PEs for the employer.


However, the threshold presence required bydomestic law (including state/provinciallegislation) to register for tax purposes maybe lower than those applicable under a tax treaty and maythereforetrigger corporate income tax registration requirements.In addition, not all income taxes are covered by the applicable double tax treaty, (e.g. state income taxes in the United States of America).Tax administrations are therefore encouraged to provide guidance on the application of the domestic law threshold requirements, domestic filing and other guidance to minimise or eliminate unduly burdensome compliancerequirements for taxpayersin the context of the COVID-19 crisis.


Specifically on home office and PE

“(…) During the COVID-19 crisis, individuals who stay at home to work remotely are typically doing so as a result of government directives: it is force majeure not an enterprise’s requirement. Therefore, considering the extraordinary nature of the COVID-19 crisis, and to the extent that it does not become the new norm over time, teleworking from home (i.e. the home office) would not create a PE for the business/employer,either because such activity lacks a sufficient degree of permanencyor continuityorbecause, except through that one employee, the enterprise has no access or control over the home office. In addition, it provides an office which in normal circumstances is available to its employees. (…)”

Specifically on agents and PE

“An employee’sor agent’sactivity in a State is unlikely to be regarded ashabitualif he or she is only working at home in that State for a short period because of force majeureand/or government directives extraordinarily impacting his or her normal routine. (…)”

Specifically on construction sites and PE

“It appears that many activities on construction sites arebeing temporarily interrupted by the COVID-19crisis. The duration of such an interruption of activities should however be included in determining the life of a site and therefore will affect the determination whether a construction site constitutes a PE. (…)”