Employers are finding talent everywhere,both domestically and across borders. When hiring employees abroad, employersmust consider several tax-related aspects connected to the employee’sactivities.
One important risk is that an employeeworking remotely may trigger a corporate income tax presence, known as apermanent establishment (“PE”), in another country. As the PE concept isinternationally recognised, international groups should carefully assess theirpotential corporate income tax exposure.
This topic isparticularly relevant for international companies, scale-ups and multinationalsthat allow remote work or employ staff outside their home country, oftenwithout fully realising the potential corporate tax implications.
Permanent establishment
Most double tax treaties are based onthe OECD Model Convention. Under the main rule for the taxation of businessprofits, the country in which an enterprise is established has the exclusiveright to levy tax.
The PE concept forms an exception tothis rule. If a PE is present, the country where the PE is located may levy taxon the profits attributable to that PE. A PE is defined as a fixed place ofbusiness through which the business of an enterprise is wholly or partlycarried on. For a PE to exist, all of these elements must be present.
Assessment of a home office as a PE
The OECD Commentary provides furtherguidance on the interpretation of the Model Convention. The 2017 Commentaryalready addressed the question of whether a home office may constitute a PE.
In general, a fixed place of businessmust be at the disposal of the enterprise. Where a home office is used on acontinuous basis and the employee is required to use that location to carry onthe business, the home office may be considered to be at the disposal of theenterprise. This may be the case, for example, where no office is providedwhile the nature of the employment requires one.
On 19 November 2025, the OECD publishedan updated Commentary, introducing a new assessment framework for home offices.
Under this framework, a home office willgenerally not be considered a place of business if the employee works less than50% of their working time from that home.
Even if an employee works more than 50% of their time from home, a PE does notautomatically arise. A key consideration is whether there is a commercialreason for the activities being carried out from that location.
The updated Commentary includes fiveillustrative examples to clarify whether a PE would be present under this newframework.
While thisguidance provides helpful direction, applying the framework in practicerequires careful judgement and a thorough understanding of the specific factsand circumstances.
Case-by-case analysis
Whether a home office constitutes a PEmust always be determined on a case-by-case basis, taking into account allrelevant facts and circumstances.
In practice, it is important to assess:
- whether the old or new OECD Commentary applies as an interpretative tool;
- the position of the relevant country regarding the Commentary;
- whether bilateral agreements exist on the interpretation of home offices as a PE.
In an environment where information iswidely available and answers can easily be found online, the real challenge forinternational businesses is often not finding information, but understandingwhich rules and interpretations apply to their specific situation.
It should also be noted that while taxtreaties allocate taxing rights, actual taxation depends on domesticlegislation.
Corporate tax compliance
If a PE is present in another country,this may trigger corporate income tax registration and filing obligations inthat jurisdiction. Local compliance deadlines must be observed.
In addition, the financialadministration and systems must be properly structured to ensure that thecorrect information is available for the corporate income tax return. A keyquestion is which part of the profit should be allocated to the PE and how thisis reflected in the domestic tax return.
A robust transfer pricing policy willsupport the arm’s length remuneration of the PE.
Conclusion
International companies should assesscross-border activities from a broad perspective. An employee working remotelyfrom home may create corporate income tax exposure through a permanentestablishment.
In practice, determining whether this isthe case is rarely a simple yes-or-no exercise. It requires weighing facts,understanding local interpretations and making informed choices.
Bol International supports international businesses in assessing PE risks in the Netherlands and abroad and assists,where required, with corporate income tax compliance in the Netherlands.
