Austrian Ministry of Finance on permanent establishment issues related to the COVID-19 pandemic

Due to the COVID-19 prevention measures, many employees have for several months been unable to carry out their activities at the location at which they would normally have worked before the pandemic. In cross-border circumstances, this can lead to undesired changes in taxation rights between states – for example, due to the creation of permanent establishments (PEs). The Austrian Ministry of Finance provided information on this issue on 22 May 2020, although the Ministry of Finance generally supports the view of the OECD Secretariat (Paper of 3 April 2020; see our report here).

Home office PEs

• If employees work from home during the COVID-19 pandemic due to government recommendations in the relevant country, the Austrian Ministry of Finance does not deem this to be sufficient to create a permanent establishment within the meaning of Art. 5 OECD Model Tax Convention because the location lacks permanency and is not at the disposal of the employer.
• However, different rules apply if home office activities become the new norm after COVID-19, or if activities were partially completed from home before the restrictions entered into force. In cases such as these, a detailed analysis of PE risks is recommended.

Construction site PEs

• Unless bilateral agreements stating otherwise, the Austrian Ministry of Finance does not generally envisage any changes to the applicable periods for construction site PEs (usually twelve months) if construction is interrupted due to COVID-19.
• The Ministry of Finance has made clear that this also applies if a construction project was commissioned in several separate phases and the relevant periods are subject to bilateral DTA provisions (e.g. as is the case for Germany, Switzerland, or the Czech Republic). In these cases, the periods in which construction did not take place between the work phases do not have to be included in the calculation period for construction site PEs. In our view, this leads to the following conclusions:
  • If work during a construction phase was interrupted due to COVID-19, the downtime must be included when calculating the periods for construction site PEs.
  • However, if the COVID-19 restrictions merely extended a period without construction work between separate construction phases, this time does not need to be included when calculating the periods for construction site PEs.
• In the case of Germany, bilateral consultations are currently being held regarding a possible interruption of the period for construction site PEs.

Practical implications

• The recommendations on home offices of the relevant national authorities need to be documented, particularly the end date of any temporary measures.
• It is still unclear how the relevant periods should be calculated and how the Austrian Ministry of Finance will assess the end date of COVID-19 measures in other countries (e.g. after borders have been re-opened, but measures on physical distancing in offices remain in place, and a portion of the workforce continues to work from home).
• Unlike the OECD analysis, the Ministry of Finance information of 22 May 2020 does not contain any statements on agency PEs and the COVID-19 restrictions. In our view, it is advisable to carry out a detailed analysis.
• In accordance with the information available to use, consultations are currently ongoing with various neighbouring states, which may eventually lead to additional relief measures, which will need to be reviewed on a case-by-case basis.

Outlook

It is to be welcomed that the Austrian Ministry of Finance has now clarified some of the PE issues related to COVID-19 and generally shares the view of the OECD Secretariat. Furthermore, the Ministry of Finance intends to update the information of 22 May 2020 on a regular basis to include any new developments. It remains to be seen whether the next update will contain specific information on how to calculate the relevant periods, as well as on the date at which the Ministry of Finance will deem the COVID-19 measures to have ended. We therefore recommend monitoring the current location of employees and where they carry out activities for the company, especially during travel restrictions due to COVID-19, in order to review possible arrangements in a timely manner and fulfil all registration and compliance obligations on time.