Home Office as a Permanent Establishment - EAS 3415: A Tightening?

11 July 2019

Until now, the Austrian Federal Ministry of Finance (BMF) has specifically denied the permanent establishment status of a domestic home office of an employee of a foreign entity based on para. 12 in the Commentary to Art. 5 of the 2017 OECD Model Tax Convention (the “OECD Model”), if his or her private home is used only occasionally for work purposes and/or if the employer does not urge the employee to use his or her private home (because, for example, a workplace is already provided at the premises of the company). Up to now, it would be irrelevant whether the employee is equipped with a company laptop or a company mobile phone (compare with EAS 3392, November 2017).

In EAS 3415 (June 2019) the BMF explains with the aid of an example that a work activity that is carried out 50% at the foreign company and 50% in the domestic home office (also in case of alternating weeks) cannot be qualified as merely occasional use.

The BMF further states that “a fixed location or facility” within the meaning of §29 BAO (Austrian Federal Fiscal Code) may also exist if the employee uses a laptop and/or a mobile phone provided by the employer to perform office work in his or her private home. Furthermore, the effective power of the employer to use that location can be factually achieved with the operational use of the home office. Under Austrian national law, no permanent establishment would be created if the activities carried out in the home office were limited to so-called "true home work". That, however, only includes simple manual tasks and “low-skilled typing”. As for example, transcribing dictation - according to court rulings - is not classified as “true home work”, this legal exception is of minor importance. Under treaty law, it has to be examined whether the permanent establishment status is to be denied because of the existence of a mere auxiliary or supporting function (compare with Art. 5(4) OECD Model).

The new commentary of the BMF seems to have a stricter effect. This applies in particular to the new concept of the effective power of disposition. The effective power of the employer to use the home office can be established, as already mentioned, if the employee has to work at his or her private home because the employer does not provide a workplace, although the employee would need one in order to exercise his or her profession. Conversely, this does not necessarily mean that the provision of a workplace in the premises of a company will save it from the creation of a permanent establishment. In comparison with para. 18 of Art. 5 2017 OECD Commentary the wording of EAS 3415 has an overarching effect, since there should be a consensus in the OECD that the use of a home office is factually required (“… it is clear from the facts and circumstances that the enterprise has required the individual to use that location to carry on the enterprise's business (e.g. by not providing an office to an employee in circumstances where the nature of the employment clearly requires an office).).