Author: Sandra Sariego, Tax Advisor
In recent years, the international business model has undergone a radical change. Driven largely by recent technological advances, more and more companies have adopted hybrid working arrangements as part of their business policy, allowing a gradual but steady offshoring of their workforce.
This is undoubtedly another step towards the future, but it has posed a challenge to states and international organisations, which have seen their ability to tax significantly reduced. It is not surprising, therefore, that both have begun work to define concepts that did not previously exist in order to be able to tax the income that can be derived from them.
Within this work, perhaps one of the most relevant and difficult to define is that derived from teleworking and how it can affect both employees and companies.
One of the most frequently asked questions so far is: Can the presence of an employee from another country pose a risk to the company? The truth is yes.
On an international level, teleworking can have an impact in two main areas:
- On the one hand, that of income from work (Article 15 OECD Model Convention); and
- On the other hand, the concept of a permanent establishment (Article 5 of the OECD Model Convention).
Therefore, in this Commentary, we will focus exclusively on the second point, i.e. the risk of a permanent establishment, and we would like to warn that it is important for international companies to carefully consider this aspect, because if we look at the provisions of Article 5 MCOCDE and its Commentaries, we understand that there are several cases in which teleworking could be included and which could generate the risk of the existence of a permanent establishment, either through the notion of “dependent agent” or “fixed place of business”.
Hiring a teleworker who provides services from another country could mean that the administration considers the company to have a fixed establishment in the country in question, with all the tax implications that would entail.
But can this be assumed in all cases?
The international regulation (Article 5 of the OECD Model Tax Convention) does not lay down any specific requirements and the comments to the Model Tax Convention are very flexible (place at the disposal of the company, “determining” activity, business purpose, etc.).
Similarly, from the point of view of the Spanish tax administration, although there are some pronouncements in this respect, the fact is that they do not establish clear criteria as to which circumstances give rise to a permanent establishment and which do not. This is without prejudice to the fact that, after a detailed analysis of the situation of each company, these pronouncements can be used to move in one direction or the other.
Therefore, as we have recommended above, the most prudent position for companies should be to analyse their case, as it is clear that this is a reality that is here to stay and, as a result, it is only a matter of time before there is regulation in this regard.
