The OECD’s updated guidance is a welcome addition to the existing, but limited, guidance on remote work and provides increased clarity and flexibility for companies with cross-border remote work.
The new guidance provides better predictability, reduces the risk of unexpected tax claims, and gives employers better opportunities to set internal policies.
However, it is important that companies continue to consider a country’s national legislation regarding remote work, as national law and practice may differ from the OECD’s guidance. The guidance may therefore create some confusion in countries with stricter rules on remote work, where a permanent establishment may arise even if there are no commercial reasons. There are also countries with more generous domestic laws and guidelines on when a permanent establishment may be deemed to arise. KPMG therefore recommends that companies document remote work and continuously monitor the development of international tax rules to avoid future risks.
The new guidance is largely in line with the Swedish Tax Agency’s legal guidance on work from home (Ref: 8-1677220), in which the Tax Agency also places great emphasis on whether there are commercial reasons for the arrangement (circumstances considered in the assessment include, for example, whether there is any benefit for the company in having the work performed in Sweden, or if the company has customers in Sweden that the employee works with, and whether there is any connection between the company’s activities and the geographical location).
One difference, however, is that the Tax Agency considers whether there is any benefit for the company in having an employee’s work performed in another country. This means, among other things, that Example E above, depending on the circumstances, could potentially be assessed differently by the Tax Agency. The OECD, however, seems to consider that an employee providing virtual services to customers in different time zones is a commercial reason, even if the company does not have any direct benefit from the employee’s work being performed in the country concerned.
It is also likely that the Tax Agency will update its legal guidance in line with the OECD’s new guidance, as a permanent establishment should arise in fewer situations than before.
Even though the OECD’s new guidance is clarifying, there are still situations where the assessment remains complex, as in Example E. We therefore particularly emphasize that it is always important to make an assessment in each individual case based on both national laws, the applicable double tax treaty, and the OECD. The same applies in situations where companies have people in senior positions, such as CEOs, working remotely.
If an exemption is granted under the Telework Framework, the employee is covered by social insurance in the country where the employer conducts its business. Without an exemption, EU regulations may instead mean that the employee is socially insured in their country of residence.
Normally, a company reports social security contributions on employees’ compensation in the country where the business is conducted. If no exemption is sought and social security contributions must be reported in a country where the company does not conduct its business, this is usually perceived as a resource-intense and a costly extra task. An exemption under the Telework Framework is therefore a welcome simplification for employers, where applicable. The conditions for applying for an exemption are aligned with the OECD’s updated guidance on whether remote work from home should be considered a permanent establishment or not.
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