An Increasingly Less Remote Situation: New O.E.C.D. Model Treaty Commentary on Remote Workers

Volume 12 No 6    /    Read Article

By Stanley C. Ruchelman and Wooyoung Lee

Remote work is one of COVID-19’s enduring legacies. What began as something necessary for health and safety reasons has become a fairly conventional practice. Not surprisingly, issues have arisen related to remote work locations as permanent establishments when an individual resides in Contracting State 1 and works for an employer based in Contracting State 2. In November, the O.E.C.D. issued additional guidance to the permanent establishment article of the Model Tax Convention on Income and on Capital, without changing any of the text of the article. The updated commentary emphasizes that general principles for determining the existence of a P.E. – such as the permanence of the premises and whether the premises are used to carry out core business functions rather than ancillary functions – apply in evaluating whether the employer based in Contracting State 2 maintains a P.E. in Contracting State 1 by reason of a home office of an employee located in Contracting State 1. In their article, Stanley C. Ruchelman and Wooyoung Lee explain that the new guidance focuses principally on two factors: time spent working out of a remote worker’s home and commercial reasons for being in another country. Five examples of typical fact patterns are provided, of which four provide favorable outcomes. Companies with remote workers are encouraged to use the examples in drafting – and enforcing -- a remote worker policy that parrots the examples that reach favorable outcomes. Failure to do so will prolong the current system that yields uncertainty.  See more →