On 21 January 2021, the Organisation for Economic Cooperation and Development (OECD) issued Updated guidance on tax treaties and the impact of the COVID-19 pandemic (Guidance) (available here).
- tax residence of companies and individuals;
- creation of permanent establishments;
- taxation of income from employment.
- The exceptional and temporary change of the location where employees exercise their employment as a result of public health measures imposed or recommended by the government, (i. e. working from home) should not create new permanent establishment (PE) for the employer.
- An employee’s or agent’s activity in a jurisdiction should not be regarded as “habitual” if they have exceptionally begun working at home in that jurisdiction as a public health measure imposed or recommended by at least one of the governments of the jurisdictions involved. As a result, such activity would not constitute a dependent agent PE.
- Periods where operations of the construction site are prevented as a public health measure imposed or recommended by the government constitute a type of interruption that should be excluded from the calculation of time thresholds for construction site PE.
- A temporary change in location of board members or other senior executives is an extraordinary and temporary situation due to the COVID-19 pandemic and such change of location should not trigger a change in tax residence status.
- An exercise of employment in other jurisdictions due to a public health measure of one of the governments involved should not by itself affect the individual’s residence status for tax treaty purposes. If an employee is prevented from traveling because of COVID-19 public health measures and remains in another jurisdiction, COVID-related days of presence may be ignored in considering the 183-day limit. As a result, such employment-related income should not be taxed in the jurisdiction where the work was actually performed (taxation shall occur only in the state of tax residency).