The hybrid and work-from-home models are now firmly entrenched in modern business practices. While working remotely within the same jurisdiction as the company's main office has limited tax implications, the situation grows complex when an employee's home office is in another country. In these cases, it's essential to assess whether the foreign location establishes a "permanent establishment" for the company.
International Guidance
The OECD Model Tax Convention and most double tax treaties do not specifically address remote work in foreign locations. However, the OECD commentary suggests that a PE may exist if an employee's home is used regularly and at the employer's direction to conduct business activities. This implies that a PE could be recognized even when the employer doesn't directly provide the office space.
Polish Perspective
In Poland, tax authorities often reference OECD guidance and interpret it to mean that an employee's home office may create a PE, as seen in numerous individual tax rulings. Some administrative courts agree, though there are divergent interpretations across the judiciary. A home office typically qualifies as a PE when the following criteria are met:
- The work is ongoing and consistent.
- The employee's role requires a designated workspace.
- The employee uses their home office at the employer's request.
- The employer requires the employee to use their home for business operations.
- The home office activities are core to the business, not just support functions.
Unclear Regulations
These criteria lack concrete statutory backing and have evolved through court rulings rather than formal legislation. This piecemeal approach highlights the need for clear legal frameworks, as the issue of cross-border remote work remains relatively new and underregulated.
Need for International Consensus
This ambiguity creates significant uncertainty for companies, which are left guessing about their potential PE obligations and tax liabilities abroad. Ideally, global or EU-wide consensus would provide clear guidance, ensuring consistent tax treatment across countries.
Business Impact of Inconsistent Standards
Without standardized rules, countries may impose different requirements, potentially deterring companies from supporting remote work. This could undermine employee well-being and, ultimately, affect business competitiveness.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
