Per end of June the Austrian Ministry of Finance issued a statement regarding the criteria for a home office to be considered a permanent establishment (PE) following domestic tax law and to Double Tax Treaties (DTT).
1. Which steps need to be taken to assess a permanent establishment?
The existence of a PE is to be tested according to the following two steps:
- Domestic law: This step is relevant to verify whether there is an indication of the presence of a local PE under local tax law, and, thus, whether a registration for income tax purposes in Austria might be necessary.
- DTT: An applicable DTT governs the actual taxing rights between the involved jurisdictions. Thus, if a local PE has been identified according to step 1, it has to be checked whether there is also a permanent establishment based on the applicable DTT or if the DTT eliminates Austria´s taxing right.
2. When is a PE created under domestic law?
A permanent established under domestic tax law may already exist if an employee only performs minor business activities in the home office for the employer.
Essentially, if an employee uses a laptop and a mobile phone, both provided by the employer, to work in the home office, the home office may already constitute a permanent establishment for the employer.
From the view of the Austrian Ministry of Finance, the performance of activities by the employee in the home office already is sufficient to create an authority to dispose of the home office of the employer.
3. When is a PE created under applicable DTTs?
These are the main questions to be dealt with in order to check if there is also a PE risk under applicable DTTs:
|Does the activity in Austria require an office and is, therefore, the home office ultimately necessary for the performance of the activities in Austria?||No||Yes|
|Is the work of the employee only occasionally and interruptedly (also) performed in the home office?||Yes||No|
|Does the employee claim deduction for expenses in relation with the home office in his personal income tax return in Austria?||No||Yes|
|Has the Austrian employee been expressly asked to provide the home office for the performance of the business activities in Austria?||No||Yes|
4. Specific exemptions: Activities explicitly not giving rise to a PE
- Tasks according to the “home working law 1960” (Heimarbeitergesetz 1960) do not lead to the constitution of a PE: “Homeworker is a person that, without being a business person according to the Austrian trade law (“Gewerbeordnung”), operates in his/her own apartment or in another chosen facility in the areas of manufacturing, editing, processing, or packaging by order and for account of people that assign such tasks “.
- The definition already clearly indicates that tasks that fall into this category are rather limited. For example „simple“ typist tasks are already considered to be overly qualified.
Mere ancillary activities in the course of the company’s business operations:
- A PE is also not constituted if the employee only provides mere ancillary activities in the home office that are not related to the company’s main business operations.
5. TPA Tipps for homework in Austria
If employees regularly work in their own apartment for a foreign employer, the performed activities may already trigger a PE for the employer. We recommend a detailed check.
Caution: Under domestic tax law also minor activities in the home office may create a PE for the employer. A tax registration or the submission of tax returns in Austria, however, may only be omitted if it is almost certain that there is no PE under the relevant DTT. This is the case under the following circumstances:
- The tax exemption on Austria undoubtedly follows from an applicable DTT;
- Both contracting states apply the DTT in the same way (corresponding view) and
- On request, a documented proof of taxation of the income in the foreign employer´s country can be provided to the tax authorities.
Are you a homeworker? Contact TPA tax expert Iris Burgstaller in case of questions regarding Home Office as Permanent Establishment!