Remote working and shift in economic nexus

This article is written by Brian James and David Morales. Brian ([email protected]) and David ([email protected]) are Senior Consultants in the International Services Practice of RSM Netherlands with a focus on Global Mobility Services.

Working remotely can take place in many shapes and forms, amongst others in an employment relationship, under self-employed status, working holidays, digital nomads and working in hubs/shares spaces. Each of these forms can lead to a variety of consequences in various areas, including tax and social security. With respect to taxes, the OECD issued recommendations at the time of the COVID-19 outbreak to keep the tax position of individuals “as is” in case they were limited in travel and needed to work in a different country. This included recommendations to limit the effect of the individual’s presence from a corporate income tax perspective, mainly through the creation of a permanent establishment. However, when the world opens again, these positions should be reviewed and reconsidered.

Agility and consequences

The COVID-19 pandemic showed the world how internationally agile a company can be. It is now not uncommon for employees to live/work remotely in a country other than where their employer is established. In addition, we are seeing that companies are making use of this development (or should we say: opportunity) to explore commercial activities in these countries as well.

Aside from the possible wage/payroll and social security tax obligations, such developments/activities can also lead to consequences as corporate income tax level. The latter tends to be overlooked in first instance since the primary focus is normally on wage/payroll tax and social security. And even if the permanent establishment issue is identified, companies will generally first consider the risk of creation of a permanent establishment in case of employees working remotely (even if from home).

Nonetheless, given the developments around permanent establishment legislation and regulations, combined with an internationally agile workforce, companies will need to create policy, processes and an infrastructure to deal with this matter. Even without an office of other form of legal presence of the employer in a different country, the movement of an employee or employees can lead to corporate income tax consequences through the creation of a permanent establishment. A permanent establishment in general creates a taxable presence by virtue of the economic activities of the foreign company.

In general, a permanent establishment is created if the foreign company has (1) a durable physical construction at its disposal (e.g. an office, factory or home-work office) and (2) if the company has a fixed representative in the country at hand. The question then arises at which point does a home-office become a permanent establishment for the foreign employer. The main question to be answered here is whether the home-office is at the disposal of the foreign company for the performance of business activities.

The determination of this depends on facts and circumstances of each case. Generally, if the activities are required to be performed from the home-office, this will under normal circumstances lead to the creation of a permanent establishment. In turn, this will lead to corporate income tax filing obligations for the foreign company in the country where the permanent establishment is located.

Historically, a fixed representative was only deemed present if the representative had authority – and made use of this authority – to contractually bind the foreign company to third parties. However, under influence of case law and the OECD, there is a trend to take a more economic-based approach in a fixed representative creating a permanent establishment. The creation of a permanent establishment may already take place if the fixed representative carries out a certain degree of company activities in a particular country. We are reaching a stage at which simply curtailing the representative’s authority to contractually bind the foreign company will not be decisive to determine whether a permanent establishment is created. Here also, the determination on whether a permanent establishment is created will depend on facts and circumstances of the specific case.  


As the digital world continues to grow and the need and necessity to work from an office diminishes, working remotely will continue to gain momentum and more and more become the norm. As a result, companies need to consider the impact of remote workers working in different countries, not only from a wage/payroll tax perspective, but also from a corporate income tax perspective through the creation of a permanent establishment.

An important aspect of this is that tax authorities are continuing to gain insight into where companies and their employees are performing their business activities. Our expectation in this respect is that tax authorities will also start focusing on home-office aspects of remote working as part of increased attention to where a company’s economic nexus is. As a result, internationally active companies should (continue to) monitor the whereabouts of their workforce, now also with particular attention to their remote workers. In addition, attention should be given to the creation of policy, procedures as part of their tax governance infrastructure.