The Covid-19 pandemic has impacted every part of our lives – tax treaties have not been immune to this impact. Earlier this year, the OECD issued updated guidance on the impact of the Covid-19 pandemic on tax treaties. This guidance is intended to provide further certainty to taxpayers as it reiterates most of its original guidance issued in April 2020, a few months after the pandemic broke out. A number of countries have also issued their own guidance to provide certainty to taxpayers who could be impacted by their own tax treaties or domestic tax legislation – most countries have followed the OECD guidance. The guidance applies only to situations arising during the pandemic and it is, therefore, temporary in nature, seeking to avoid instances of double taxation whilst ensuring that it is not relied upon to create instances of double non-taxation. The guidance covers the following sections: 1. The creation of a permanent establishment (‘PE’) and the interruption of construction sites; 2. Changes in residence for entities and individuals; 3. Income from employment. The main theme of these guidelines is that, in view of the fact these changes are exceptional and temporary, they should not create adverse tax consequences for the taxpayer. This may be seen in the ‘Home Office’ section of the guidance which states that in order for a home office to be deemed to be a PE, it must have a degree of permanence and be at the disposal of the enterprise. The ‘degree of permanence’ will not be met if the home office has simply been created as a result of the Covid-19 pandemic, as individuals working from home are typically doing so as a result of public health emergencies. However, it is likely that a number of companies will allow employees to work from home even once the pandemic is over. One needs to look at the facts and circumstances of each case to determine whether such home office will result in a PE for the enterprise post-Covid 19, as this could result in a material tax consequences for the enterprise. A matter of great concern is also the impact that the pandemic will have on the tax residence of companies, in view of the travel restrictions which have been imposed which do not allow board members or senior executives to travel to the company’s typical place of residence. In view of the fact that the change in location of board members or senior executives is extraordinary and temporary, this will unlikely result in any changes to the company’s tax residence status under a treaty. A similar general conclusion is discussed for concerns relating to the residence status of individuals. Here again, it is unlikely that such a temporary change could result in a change in the tax residence of the individual as a result of applying the tie-breaker rules. As mentioned, each case should be looked into separately depending on the specific facts and circumstances and taking into consideration any specific guidance issued by the country in question on the impact of the pandemic on tax matters. The writer is a partner at Seed Consultancy in the European Union.
