Globalisation and technology have brought about a radical change in the international business model to, among other things, divert profits to countries with low or no taxation. This has been significantly aggravated by the pandemic, and remote work has come to our day, but is it here to stay? It seems to be so.

After the pandemic, many companies have introduced hybrid remote working models in their business policy, which presents a scenario that highlights new challenges for international taxation. In particular, the possibility for remote work to entail the existence of a Permanent Establishment (PE) in the country where the worker is based.

The first question to ask is: Are we legally prepared for these changes? Does our international regulation provide a clear answer to such cases? We do not think so.

At the international level, remote work can have an impact in two areas: 1. That of earned income and 2. That of the concept of PE. The second area is where we think it could have the most impact: On the traditional concept of PE.

Thus, if we look at the provisions of Article 5 of the OECD Model Tax Convention, there are several cases in which remote work could fit in and which could generate the risk of the existence of a PE. Hiring a remote worker, who performs his or her service from another country, may imply that the hiring company has a fixed place of business in another country. Is this always the case, or must a number of circumstances be met?

International regulations do not establish specific requirements, which demonstrates a clear international need for rethinking concepts or for establishing new, clear criteria.

Finally, as far as Spain is concerned, the Spanish Directorate-General of Taxes (DGT) has ruled on a case in which, in a pandemic, a worker providing services for a company located in London moves to do the same work from Spain.

In this consultation, the DGT analyses the requirements that must be met for a PE to exist in Spain from two perspectives:

  1. The performance of the activity in Spain through a dependent agent, i.e. a person who acts on behalf of the company and exercises powers that enable him to conclude contracts on its behalf; and
  2. The existence of a fixed place of business through which the company carries out all or part of its activity. Here it refers to the need for the company to have a “place at its disposal”, without clearly specifying what this refers to.

Consequently, while it is true that the trend is to start introducing concepts, the reality today is that the concepts remain flexible and unspecific, which leads us to conclude that, although some changes have already come to stay, others are yet to come.