COVID-19 tax impact on cross-border activities

Tax implications from a PE perspective

COVID-19 forces governments to introduce measures restricting travel and implementing certain quarantine requirements. A potential tax issue could arise by cross-border workers who no longer physically perform their activities in the principle country of employment, as they may have to stay at home under quarantine restrictions. Although working from home has become more accessible with the increasing digitalization, these circumstances could potentially have an adverse impact on the right to tax between countries as currently governed by international tax treaty rules.

The dislocation of employees may lead to the constitution of a tax presence – a so-called Permanent Establishment (‘PE’) – for an employer in the country in which the employee resides potentially triggering filing requirements and tax obligations for that non-resident enterprise for corporate income tax purposes.

Home office

In general, a PE has a certain degree of permanence and is at the disposal of an enterprise, typically a fixed place of business through which the business of that enterprise is wholly or partially carried on. As a home office could constitute a PE, employees that are forced to work from their home country may constitute a PE in that country for their employer. However, merely temporarily working from home is not enough which is also confirmed by the recently published OECD guidance, stating that the carrying on of intermittent business activities at the home of an employee does not make that home a place of business at the disposal of the enterprise. This would only be the case if that home is used on a continuous basis for carrying on business of the enterprise (employer) and the employee is generally required by the employer to use its home to carry on the enterprise’s business.
To the extent that it does not become the new standard over time, teleworking from home (i.e. home office) would therefore not create a PE for the employer due to lacking a sufficient degree of permanence and continuity under the OECD guidance.

Agency PE

The activities of a dependent agent may constitute a PE if the employee habitually concludes contracts for and on behalf of the non-resident enterprise. However, the OECD guidance explained that the presence of an enterprise in a country should be more than merely transitory for the employer, before it is regarded as maintaining an Agency PE. This means that insofar the individual is temporarily working from home, in particular for a short period of time and/or due to the government measures, the agent’s activity is unlikely to be regarded as constituting an Agency PE.
However, it is important that the employee is not (or will not be) habitually concluding contracts on behalf of the enterprise in its home country before the Corona crisis (or from now on going forward).

Construction PE

Under OECD principles, a construction site will generally constitute a PE if the work on site lasts more than 12 months. Due to the Corona crisis, construction activities may be temporarily interrupted which means that work on site could consequently exceed the time threshold and constitute a construction PE.
In line with the OECD Commentary, the duration of (temporary) interruptions should be included in determining how long work on site has taken place, which the recently published guidance confirms.


Although it remains to be seen how the guidance will be interpreted by the different countries, the Netherlands is expected to follow the OECD guidance for Dutch tax purposes. We can therefore analyze your tax presence and the risk of constituting a PE. It is furthermore important that all activities are properly documented, as local tax authorities may still claim that a PE was created due to the COVID-19 circumstances in the future. We can advise you about what to document and the level of detail of that information required to avoid any room for discussion.

Bol International has international tax advisors that are specialized in advising on PE exposure on a regular base and is happy to assist you or provide clarity. Please contact our Corona Crisis Team for more details.

Contact our Corona Crisis Team »

08 May 2020