Agreement on the concept of ‘permanent establishment’
The agreement was published on December 8 and is intended to clarify for employers in the Netherlands and Belgium whether having employees work from home in their country of residence results in a permanent establishment for the purposes of the tax treaty.
Why is this important?
Having a permanent establishment can have consequences for employers and employees. An employee who works from home in their country of residence may constitute a permanent establishment or permanent representative of the employer in that other country. If there is a permanent establishment or permanent representative, this may result in corporate income tax obligations, such as registering for corporate income tax purposes and filing tax returns, in the employee’s country of residence.
In addition, there may be payroll tax and personal income tax consequences for both employer and employee, for example, a registration and withholding obligation in the other country.
What does the agreement mean?
The Netherlands and Belgium wish to provide employers with clarity about the elements that are important when assessing whether having employees work from home in their country of residence results in a permanent establishment. The agreement addresses the following situations:
- occasionally working from home;
- permanently working from home with the option to work at the office; and
- permanently working from home because it is compulsory to do so.
With regard to employees who infrequently or occasionally work from home and thus for whom working from home is not a fixed working pattern (situation I), there is no reason to conclude that this constitutes a permanent establishment. With regard to situations II and III, the agreement contains guidelines on how the facts and circumstances should be assessed.
It also explains how the agreement should be applied in practice if an employee spends 50% or less of their time working from home in their country of residence, or if the activities are preparatory or auxiliary activities.
Would you like to know more about what this agreement means for you as employer? Feel free to contact our global mobility specialists. They would be happy to help you analyze the situation of your working from home cross-border workers.
