Author: Sandra Sariego Pérez, Tax advisor and Lawyer at Bové Montero y Asociados

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Globalisation and technological advances in recent times have brought about a radical change in the international business model. Some companies have been using digitalisation and new business models to, among other things, divert profits to countries with low or no taxation.

The above, which has undoubtedly been a challenge for all states individually – it continues to be so while tax harmonisation schemes are still being studied and agreed at international level – as well as for multilateral organisations from a more global perspective, has been significantly aggravated as a consequence of the pandemic resulting from Covid-19, where many workers have been blocked in countries other than those of their residence or their usual place of work. This is how remote work has arrived today, certainly to stay.


After the pandemic, many companies have introduced hybrid remote work models as part of their business policy. This brings us to a scenario which, although not entirely new (we should not forget that international mobility of employees has always existed, albeit to a lesser extent than today), now brings new challenges for international taxation. In particular, the possibility that remote work may entail the existence of a permanent establishment in the country where the employee is located, with the consequent tax implications if this is the case (e.g. it could entail taxation in terms of direct taxation, which is something that companies always try to avoid).


In view of this international panorama, the first question that companies and institutions should ask themselves is whether they are legally prepared to face these changes and, secondly, they should reflect on whether current international regulations provide a clear response to this type of scenario. In our opinion, the answer in both cases is no, despite the fact that in Spain the Directorate General for Taxation has already issued some pronouncements on the matter. At the international level, remote work can have an impact on two main areas: that of income from employment (Art. 15 of the OECD Model Convention) and, on the other hand, that of the concept of permanent establishment (Art. 5 of the OECD Model Convention).


We will focus our analysis on the latter, as this is where we believe remote work could have a greater impact. If we look at the provisions of the aforementioned Article 5, there are several cases in which remote work could fit in and which could generate the risk of the existence of a permanent establishment, either with a dependent agent or through a fixed place of business, although we understand that the latter could have a greater impact. 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. However, is this always the case or must a number of circumstances be met?


Remote workers and companies are facing a scenario of maximum uncertainty


New criteria

The international regulation (again, Article 5 of the OECD Model Convention) does not establish specific requirements to delimit the conditions under which the remote worker’s status may entail the existence of a permanent establishment – not all of them do – and the comments to the Model Convention are very flexible (place at the disposal of the company, “determining” activity, business intentionality, among others), which shows a clear international need to rethink concepts or establish new criteria, in order to make them clear, specific and determinable.


Finally, as far as Spain is concerned, the Directorate General for Taxation, in its recent binding consultation V0066/22, has ruled on one of these “conflictive scenarios” in a case in which, in the midst of the pandemic, an employee who provided services for a company based in London moved to provide such services from Spain. In the aforementioned consultation, the Spanish tax authorities analyse the requirements for a permanent establishment to exist in Spain from two perspectives: 1) The performance of the activity in Spain through a dependent agent, i.e. a person acting on behalf of the company and exercising powers enabling him or her 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 (in this case, the consultation refers to the need for the company to have a “place at its disposal”, without clearly specifying what is meant by this expression).


Consequently, although it is true that the national and international trend is marked by the gradual (and necessary) introduction of concepts, in our opinion the current reality is that these new concepts suffer from too much semantic flexibility and are therefore not very precise.


Given the foregoing, we can only conclude that, although it is true that states and international organisations have begun their work to specify the impact of remote work in our times, from both a fiscal and organisational perspective, it is no less true that, for the moment, companies and remote workers are subject to a scenario that could be characterised as one of maximum uncertainty, with the consequent legal insecurity that this entails.