OECD tax guidance in response to Covid-19 crisis 

On 3 April 2020, the secretariat of the Organisation for Economic Co-operation and Development (OECD) issued some guidelines to address tax issues arising in cross-border situations in the context of COVID-19 pandemic. 

The OECD’s guidance underlined the following key points for companies: 

• Regarding the creation of a permanent establishment (“PE”), the home office should not create a PE of the company (which would trigger new filing and tax obligations) in the employee’s country of residence. However, domestic laws may represent a risk of unduly burdensome compliance requirements for the company in the country of the employee (e.g. obligation of tax registration).
• Regarding the company’s tax residence, the temporary and extraordinary relocation of executives should have no impact on the determination of (i) the usual place of effective management, or (ii) the resident status of a company in situations of dual residence as a result of the relevant domestic laws.

OECD’s guidance also addresses the situation of cross-border employees: 

• The wage subsidies paid by the employer according to the stimulus package adopted in the employer’s country should continue to be taxable in the country where the employment used to be exercised prior to the COVID-19 pandemic.
• The OECD is currently working with countries to address the issue of employment income which may become taxable in the country of residence of the employee instead of the country where the employment used to be exercised before the COVID-19 quarantine and which therefore causes new liabilities for the employer (e.g. suspension of the tax withheld) and new compliance burdens for the employee.
• That being said, the tax residence status of individuals should not be affected if the individuals who acquired the residence status of their “working country” returned to their previous home country during the COVID-19 measures or if they are temporarily away from their home in a host country.