The rise of remote work has fundamentally reshaped the modern workplace. For internationally active companies, this shift brings not only opportunities, such as increased access to global talent, but also significant tax challenges. Among the most complex is the risk that an employee's home office abroad may be treated as a permanent establishment ("PE") of the employer, potentially triggering corporate tax exposure in that jurisdiction.
Why it matters
If a home office qualifies as a PE, part of the foreign employer's profits may become taxable in the employee's country of residence. This can trigger corporate income tax liabilities, reporting obligations, and potential double taxation issues. These issues are especially relevant in cases where the employee plays a strategic, commercial or decision-making role, exercises significant authority, or maintains a strong local presence.
Key conditions for a home office PE
Under Article 5 of the OECD Model Tax Convention and its commentaries, a home office may constitute a PE if it is used on a regular and structural basis and is considered to be at the employer's disposal. In practice, this requires that the employer either explicitly or implicitly requires work to be carried out from the home office and exercises a certain degree of control over its use.
A home office used voluntarily by the employee for personal reasons will generally not meet these conditions. However, where remote work is imposed by the employer—for example, through contractual obligations or the absence of an available workplace—the risk increases. That said, the existence of a PE must always be assessed based on the specific facts and circumstances.
The Belgian position and the Belgium–Netherlands agreement
In Belgium, although no formal administrative guidance exists, the Ruling Commission has consistently applied the OECD criteria when analysing the existence of a PE. In practice, rulings have confirmed that voluntary and/or occasional telework does not give rise to a PE.
In a 2023 agreement between the Belgian and Dutch tax authorities, a pragmatic 50% threshold was introduced. If an employee works from home less than 50% of the time over 12 months, the home office cannot be considered a PE. Above that threshold, further analysis is needed to assess whether the employer has sufficient control over the home office to trigger a PE.
The agreement makes a distinction between the following three categories:
- Occasional telework : No PE if occasional or irregular telework;
- Structural but voluntary telework : No PE if regular telework but it is voluntary, meaning that the employee has the possibility, if he / she wishes to do so, to fully work from an office put at his / her disposal by the employer;
- Structural and mandatory telework: Risk of PE if telework is required, explicitly or de facto, by the employer, subject to case-by-case analysis of the facts and circumstances at hand.
Positions taken by other countries
Different jurisdictions apply varying standards. Germany adopts a strict approach, requiring formal control by the employer over the home office for a PE to be recognised. Austria, Finland, Sweden and Denmark place more emphasis on whether the employer has a commercial interest in the employee's presence in the country.
In a recent case, the Danish tax authorities went even further, recognising a PE where a senior executive carried out key decision-making functions from home, even without direct contact with the local market.
Profit allocation to the PE
If a PE is found to exist, the next step is to determine the profits attributable to it. Under the Authorized OECD Approach ("AOA"), the PE is treated as a functionally separate entity, and profits are allocated based on the functions performed, assets used, and risks assumed.
In most telework situations, the employee performs routine support or back-office activities, which typically justifies remuneration on a cost-plus basis. However, alternative remuneration methods may be more appropriate when the remote employee carries out strategic or high-value functions, contributes to the development of key intangible assets, or engages in commercial or sales-related functions.
Practical recommendations for businesses
To mitigate the risk of creating unintended PEs, businesses should take a proactive approach. This includes clearly documenting the voluntary nature of telework, maintaining, where possible, a physical workplace accessible to employees, and ensuring employment contracts reflect that the home office remains under the exclusive control of the employee.
In Belgium, companies should also be aware that the mere presence of an employee for more than 30 days may trigger the obligation to file a "nil" corporate tax return, even in the absence of a treaty PE.
Looking ahead
A harmonised global framework is still lacking. The OECD is expected to update its Commentary by late 2025, though the changes are likely to focus on clarifying existing guidance. In the meantime, national tax rulings and bilateral agreements, such as the Belgium–Netherlands agreement, can offer practical benchmarks for businesses navigating this evolving landscape.
Our specialists explore this topic in further detail in their article "Quand la fiscalité s'invite chez vous – votre domicile peut-il être un établissement stable ?" published in the May issue of the Revue Générale de Fiscalité et de Comptabilité Pratique, accessible via Wolters Kluwer / monKEY. The article includes a detailed analysis of the OECD guidance on home office PEs and of the Belgian position, comparative insights into national approaches, practical examples, further guidance on the allocation of profits to the PE, and an overview of recent developments at EU and OECD level, along with practical recommendations for businesses.
Downloads
Read more here
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.
