Basic principles - Home office-driven permanent establishment?
In cases where the home office is across the border, the question that immediately arises is whether or not a home office-driven permanent establishment could exist. Austria, when compared with Germany, has traditionally interpreted the concept of a permanent establishment (PE) more broadly. Here, the ‘de facto power of disposal’ had hitherto been put on an equal footing with the ‘effective possibility for use’. Accordingly, the mere possibility for use was already viewed as being sufficient for the creation of a permanent establishment.
The OECD, in its guidance on ‘tax treaties and the impact of the COVID-19 pandemic’, clarified that: “the exceptional and temporary change of the location where employees exercise their employment because of the COVID-19 pandemic, such as working from home, should not create new PEs for the employer.” However, there was no statement about the period following the pandemic.
Clarification by the VwGH
The VwGH, in its ruling of 22.6.2022 (case reference: Ro 2020/13/0004-7), which is now available, provided an unequivocal clarification of the situation during the period following the pandemic, too.
The case that was brought before the VwGH concerned a person resident in Hungary who had worked in Austria, in the period from 2013 to 2016, as a translator and interpreter. She had exercised the option to have unlimited tax liability status and, in accordance with Section 1(4) of the Austrian Income Tax Act, had declared her income from commercial operations. The Hungarian interpreter explained that she had been able to share the use of the office infrastructure of her Austrian client in order to provide language services for Hungarian nationals and to help them when they communicated with the authorities in Austria.
In its ruling, the VwGH stated that the possibility to share the use of a desk at the office premises of another taxpayer was not sufficient to affirm that the power of disposal over a fixed place of business exists.
Please note: We therefore believe that this also constitutes a clear rejection of the notion of a home office-driven permanent establishment. It thus does not matter whether employees work at their kitchen tables or at desks that have been made available for them to use by their employers because the business owners will not be able to acquire either de facto power of disposal over nor the effective possibility for use of the private premises of the employees.
Home office by virtue of the managing director
However, a permanent establishment issue can emerge if the sole managing director of a GmbH [German private limited company] that is headquartered in Germany works mainly in Austria or vice versa and, on account of the scope of their activity, the place of effective management changes. “The place of effective management is the place where key management and commercial decisions that are necessary for the conduct of the entity’s business as a whole are in substance made.” (margin no. 24 in the OECD Commentaries on the Articles of the MTC on Art. 4 OECD MTC 2014).
Consequently, what matters is the place where these decisions are made and not, for instance, the place where management instructions are received. Therefore, if the sole managing director makes all the key management and commercial decisions while working in Austria then, according to Art. 4(3) of the DTA with Germany, the GmbH would be deemed to be based in Austria.