Due to the impact of the Covid-19 pandemic, governments have imposed restrictions on individual travel. This has led many companies to adapt their work model to accommodate home-based workers.
The effect of this change has been fewer employee relocations and workers who were given the option to choose their home base for work that could be performed remotely, notes law firm ENS Africa.
The restrictions imposed by the government have created several cross-border tax issues. In April 2020, the OECD published a set of guidelines to address the identified issues.
The continued imposition of these government restrictions led to revised guidelines being published by the OECD in January 2021. The guidelines include an analysis of whether the April 2020 conclusions will continue to apply for a longer period of time.
The revised directives addressed, inter alia, the application of the existing rules regarding the risk of establishing a permanent place of business (Permanent Establishment (“PE”)). The general definition of a permanent establishment is a fixed place of business through which the business of an enterprise is wholly or partly carried on. An analysis of this definition shows that:
- There must be a place of business;
- The location must be fixed, ie it must be located in a certain location with a certain degree of sustainability; and
- The person must carry on the business of the enterprise through the permanent place of business. This means that if a business is carried on separately by the person in circumstances where it is not attached to the permanent place of business, it does not constitute a permanent establishment.
The revised guidelines confirm that an exceptional and temporary relocation at the employee’s workplace to, for example, the employee’s home does not create a PE for the company.
However, if the person continues to work from home after the government-imposed restrictions have been lifted, it will be tested whether a PE exists as a result of the employee’s home office or whether there is a degree of permanence and whether the premises are available to the company to to carry out its business activities. If both tests are met, a permanent business premises PE risk arises.
An individual’s home office is considered to have some degree of permanence, but this in itself will not create permanent business space unless it is determined that the home office is at the disposal of the company.
If it is clear from the facts and the surrounding circumstances that the enterprise has required the person to use that location by, for example, not providing an office, it is likely that the person’s home office is deemed to be available to the enterprise .
The creation of PE has significant implications for businesses, and given the rapid transition to remote working, these OECD guidelines may need further revision in the future to bring them into line with the ‘new normal’.
- By Arnaaz Camay, Executive | Tax, and Ntokozo Zwane, candidate lawyer at ENS Africa
Read: How new work trends can change the way we get paid in South Africa