Understanding the nuances of cross-border remote working and permanent establishment risk from an international tax perspective

The pandemic compelled us to work remotely or ‘work from anywhere’.  

Now while the pandemic is slowly retreating, remote working is swiftly gaining ground. 

Corporate nomads are busy trotting the world, leaving behind a complex trail of legal and regulatory issues with respect to corporate tax, individual tax, social security, immigration, et al.  

Cross-border remote employees face the dangers of getting the same income taxed in two jurisdictions or double taxation of their income. 

Businesses run the risk of inadvertently establishing a Permanent Establishment (PE) in another country. Having a PE in the context of remote working implies that businesses may be subject to corporation tax in the country from which the remote employee operates. The business organizations will be taxed in the foreign country to the extent their income pertains to the activities performed by the remote employees.

In jurisdictions such as Switzerland, even domestic remote working poses PE issues as the cantons (Swiss states or provinces) are widely sovereign and the corporate income tax rate varies from canton to canton.

Two recent judicial case laws highlight the litigation issues that corporates can find themselves in as regards cross-border remote working- 


Spørger, a German company involved in the production and sale of certain products in the B2B segment, employed a sales employee in Denmark. The employee for personal reasons insisted that he be allowed to work from his home country and not relocate to Germany. 

The employee was granted permission to work from Denmark to the extent that his work does not require him to be present elsewhere. Approximately 50-60% of his total working time was spent visiting dealers outside of Denmark. For the remaining period, he operated out of his place of residence in Denmark. 

Spørger argues that the employee’s performance of duties from Denmark is entirely his choice and the company does not gain anything out of such an arrangement.

Does Spørger, Germany have a Permanent Establishment in Denmark by virtue of having a sales representative working from his home office in Denmark?

Yes, says the Danish Tax Council. 

Emphasis was laid on the employee contributing to the company’s sales, which is a core activity of the company’s business and in no way is preparatory or auxiliary in nature. The employee was also responsible for expanding sales into the Nordic market which included contact with potential new customers. The company, thus, had a business interest in having the employee located in a Nordic country. 

Moreover, it was noted that a substantial period of the employee’s total working time ~40-50% was spent in Denmark. The fact that the employee’s work related to the Danish market constituted a maximum of 5% of his total work efforts, was considered irrelevant.

As per the Danish-German DTAA, 3 conditions must be met to constitute a PE in Denmark –

Further, a permanent place of business can not be established if the activity carried out is preparatory or auxiliary in nature.

Reference was also made to the Commentary on the OECD Model Tax Convention 2017 wherein it is clarified that a home office can be considered to be at the enterprise’s disposal if the employee does not have an office provided by the said enterprise and the employee continuously carries out the enterprise’s business activity from the home office. 


A senior employee of a UK company traveled to Spain on holidays and weekends. On one such trip, he was stuck and unable to return to the UK due to Covid restrictions. So, he continued to work for the UK company from Spain.

Once the travel ban was lifted, the employee unilaterally decided, for personal reasons, to stay back in Spain. The UK Company requested the employee to work from the UK in the last quarter of 2020. The employee refused and resigned.

The employee spent more than 183 days in Spain during the calendar year 2020, becoming a Spanish tax resident.

The UK Company did not bear any costs of the home office and did not factor in his stay in Spain for purposes of the employee’s remuneration. After the travel restrictions were lifted, the employee also had the company’s London office at his disposal.

Does the UK company have a Permanent Establishment in Spain by applying either the ‘fixed place of business’ clause or the ‘dependent agent’ clause?  

This case before the Spanish General Directorate of Taxes (Spanish GDT) was distinguished between two situations: 

a. The employee’s stay during COVID-19 restrictions, and 

b. The employee’s stay after those restrictions.

  1. Working from home (i.e., the home office) because of an extraordinary event or public health measures imposed by a government would not create a PE for the business/ employer during that time because such activity lacks a sufficient degree of permanency or continuity.
  2. If the remote worker continues from home once the lockdown is lifted, the remote working may imply a certain degree of permanence, and further analysis of the relevant facts and circumstances of the case is important.

In the present case, the Spanish GDT ruled out a fixed place PE in Spain as the employee’s home office was not at the UK Company’s disposal:

The Spanish GDT did not elaborate on dependent agent PE since the activities of the employee could not be identified with those of an agent.


The digital way of life often tends to outpace laws and regulations. Tax authorities are waking up to the realities of international remote working. While the idea of remote working holds ample merit and is, hence, here to stay, it can’t, however, be done on an arbitrary and ad-hoc basis anymore. Global mobility policies should attract talent, not the taxman!

Other useful resources for your reference

  1. Building a resilient remote working model
  2. PE Risks owing to cross border secondments
  3. Remote work destinations for international secondments
  4. Employer of Records guidebook

We Are Waiting To Hear From You

Name *
Email *
What makes you a part of the global mobility world?

We Are Waiting To Hear From You

Email ID*
What makes you a part of the global mobility world?
How can we help you?
Specific area(s)
Specific area(s)
Specific area(s)
Any specific details
Suggest time*
Suggest time 2*