Home office regulation and the tax relevance on the employer side

November 30, 2020

Due to the “Corona crisis”, topics that seem to have been discussed exhaustively in terms of taxation are now on everyone’s lips again: This also applies to the topic of the home office and the related question of whether the use of a room for business purposes by the employee can establish a permanent establishment. The question for the employer is whether a home office can establish a permanent establishment with far-reaching tax consequences in another country in which the employee works as part of his home office. In particular, a tax connection via a so-called permanent representative is possible according to recent case law.

A large number of employers, born out of necessity, offer their employees the possibility of a home office. As reported in the press agencies on 16.07.2020, Siemens, for example, is also offering employees the opportunity to work from home two to three days a week, above and beyond the crisis-related situation, but without any legal entitlement.

In addition to the productivity and effectiveness as advantages of mobile working, which Siemens also sees, it also has the advantage in terms of a further flexibilization of the working day that in the future fewer office properties have to be rented worldwide.1 In addition to the economic advantages, economic disadvantages can possibly also play a role, which must be critically scrutinized in advance.

Possibly, a permanent establishment, including the lesser known fact of a permanent representative, is established for tax reasons. The establishment of such a legal entity is often subject to extensive tax and other administrative obligations under both German and international tax law, which may result in drastic additional tax burdens.

With regard to the concept of permanent establishment, on the one hand there is the national regulation which results from § 12 AO for tax law, on the other hand there are also the more extensive definitions from international standards.

Permanent establishments according to § 12 AO, in the sense of the national standard, are fixed business facilities or installations that serve the activities of a company. This classically includes branches, offices, halls and workshops, warehouses, sales outlets, but also construction and assembly work that lasts longer than six months. This is referred to as the 183-day rule. Place-relatedness, permanence and power of disposal are the connecting factors of German tax law.

Due to recent developments, contrary to the previous view that a power of disposal could only be assumed if the employer had a corresponding right of access to the employee’s private premises at all times, a permanent establishment can now be established in principle even in the case of a home office arrangement, in particular if the employee is not provided with an office, although this proves necessary due to the nature of the employment relationship. As a rule, however, this will not arise in the case of merely preparatory or auxiliary activities. However, the individual case must always be taken into account.

In case of doubt, it must be assessed in accordance with each foreign tax law whether there are connecting factors for tax consideration in the respective country.

For a multinational consideration, reference can be made to the pronouncements of the OECD, which, although not binding, provide guidance: Activities of an employee in the context of a home office that are purely due to an emergency situation are probably not considered to be the establishment of a permanent establishment.2.

For a more detailed consideration of the individual case, it may be necessary to refer to corresponding mutual agreement procedures, which represent intergovernmental agreements between individual states. To what extent these regulations are also applicable to home office regulations remains to be examined individually.

Furthermore, a new understanding of the permanent representative and the related tax issues has been created by recent rulings of the Federal Fiscal Court (Bundesfinanzhof, BFH) of 23.10.2018. Since this ruling, organs of a company, e.g. a managing director (but by no means only), can establish a permanent representative in another country (e.g. in Germany), provided that residency exists in a country, by exercising the activity in this country. This body then establishes a so-called representative permanent establishment.3 Further significance is also given to cases according to which the company in Germany