A current Express Answering Service Info (“EAS”) published by the Austrian Ministry of Finance dated 1 June 2021 recalls some principles regarding the definition of the permanent establishment under Double Tax Treaties (“DTT”).
EAS of 1.6.2021
The facts underlying the EAS refer to the activities of an employee of a German asset management company in her private residence in Austria. The employee’s scope of duties relates to routine accounting services.
3 questions to check the existence of a permanent establishment for this case
1. Can an employee’s private residence constitute a business establishment for her employer’s company?
Yes. Under both national and DTT law, an employee’s private residence can in principle constitute a permanent establishment for the employer if the requirements under Art 5 para 1 OECD-MA are met. These conditions include inter alia:
- No activity at the private residence carried out merely occasionally and with numerous interruptions.
- Employee deducts expenses or expenditures in connection with the use of the Austrian residence in her tax return
- Employer has requested the employee to make his/her home available for the business activities of the employer’s enterprise.
2. Does the activity fall under one of the exceptions to the concept of permanent establishment for auxiliary and preparatory activities under Art 5 of the DTT?
Yes, accounting can generally constitute a mere auxiliary activity (to be checked depending on the industry).
If the private residence, which is to be regarded as a business facility for the enterprise, therefore only serves preparatory or auxiliary activities, the residence is not considered a permanent establishment.
For the demarcation of ancillary activities from core business activities, Michael Porter’s value chain diagram, for example, can be used for orientation.
It is important to note that the assessment of ancillary activities must always be industry- and case-specific!
3. For which entities does the employee perform the activity?
It is important that any exception to the concept of permanent establishment only covers activities performed by the employee for her own employer. This means:
- If the accounting services are only provided for the German employer, an exception may apply and thus no permanent establishment must be registered.
- However, if the accounting services are also provided for other (group) companies, there is no exception according to Art. 5 DTT and a permanent establishment must be registered and an arm’s length profit must be determined for the permanent establishment.