The Organisation for Economic Co-operation and Development OECD Secretariat issues guidance addressing concerns on Permanent Establishments (PEs), Place of Effective Management (POEM) and the residential status during Coronavirus (COVID-19) pandemic.
The pandemic has an adverse impact on the subject of tax and consequently raised various issues of tax especially where there are cross-border elements in the equation; for example, cross-border workers, or individuals who are stranded in a country that is not their country of residence. These issues have an impact on the right to tax between countries, which is currently governed by international tax treaty rules that delineate taxing rights.
The Organisation for Economic Co-operation and Development OECD Secretariat, at the request of concerned countries, issues guidance on issues related to the creation of permanent establishments (PEs), Place of Effective Management (POEM), residence status of a company change to the residence status of an individual, etc. after analyzing international tax treaty rules, in light of COVID-19 pandemic.
The work scenario has changed across the world due to COVID-19 with most employees working from homes while others may have got stuck in foreign countries because of the lockdown. The Organisation for Economic Co-operation and Development (OECD) noted that tax treaties will help determine which jurisdiction can tax an individual or company in such cases.
The note addressed concerns related to the creation of PEs, tax residency of a foreign company (place of effective management), and concerns related to cross-border workers and change to the residence status of individuals. The OECD notes that it was unlikely that the COVID-19 situation will create any changes to a PE determination.
“The exceptional and temporary change of the location where employees exercise their employment because of the crisis, such as working from home, should not create new permanent establishments for the employer,” it said.
Indian tax authorities are looking into the guidance by the Organisation for Economic Co-operation and Development (OECD) and will issue related circulars and notifications for clarification on these aspects.
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