The outcome of a recent Danish case has been of interest to us as it highlights once again the problematic area of whether an employee’s home can create a PE for a foreign enterprise.
Quite often we are asked to review a job specification or employment contract for a UK company looking to recruit sales agents to act on the company’s behalf in a foreign country. In respect of assessing PE risk, our main concern is normally whether the duties of the employee involve concluding contracts on behalf of the employer thus giving rise to a dependent agent PE. However, we also need to consider the facts and circumstances to assess the risk of a fixed place PE being created.
Typically our UK employer is making its first tentative steps overseas. They therefore tend to take a cautious approach and look to recruit an employee who will operate largely from home, visiting clients and attending trade shows. The employer does not want to incur the cost of opening an office until they can be reasonably confident of success in the new marketplace.
The key question in assessing PE status is whether the home represents a ‘fixed place of business’ of the UK employer through which the business of the UK employer is being carried on.
In the Danish case referred to above, a Scandinavian sales manager was required under the terms of his contract to work from home. Although he spent the majority of his employment duties travelling and visiting clients, the Danish Tax Board ruled that the manager’s occasional use of a home office for administrative work constituted a PE of his German employer.
The Swedish Tax Agency published a statement in July 2015 which sets out their view on the circumstances an employee’s work at home may result in a PE. The Tax Agency set out a number of factors that need to be considered including:
- If it has been agreed that the employee should perform work from home, or if there is an implied agreement that the employee should work at home
- If the employee has an office or workplace in another country where he or she can perform work
- The amount of work performed from the employee’s home
- The permanency of the work performed from the employee’s home
- The type of work that is performed from the employee’s home
As expected, the Tax Agency also makes it clear that the actual circumstances must be reviewed and not to rely simply on what the employment contract states.
The position above in Denmark and Sweden is broadly consistent with the OCED’s proposal as set out in a discussion draft on changes to the model commentary (published in October 2012). However, the proposal did not find its way into the updated 2014 edition of the commentary so it appears that there is still no consensus of approach from the OECD member states.
This highlights the difficulty in advising our UK employer of the implications of using an overseas sales agent as there is no hard and fast rule to apply. It is therefore important to consider each situation on a case by case basis and seek local advice where there is a perceived risk of the home office creating a PE.