Employee’s home as a permanent establishment for tax purposes

November 12, 2024

The concept of a permanent establishment (PE) is closely related to double taxation avoidance agreements. Using the Polish-German DTA as an example, it should be recalled that a permanent establishment is a fixed place through which a company’s business is wholly or partly conducted. The term “permanent establishment” includes, in particular, a place of management, a branch, or an office.

When does an activity constitute a permanent establishment, and when does it not?

A PE may also arise when a person, other than an independent agent, acts on behalf of the company and has the authority to and habitually exercises that authority to conclude contracts in the country. However, a PE will not include, for example, the use of facilities solely for storage, display, or delivery of goods belonging to the enterprise.

Permanent establishment and remote work

A German company appears to have raised an obvious issue in an individual interpretation dated September 4, 2024 0114-KDIP2-1.4010.364.2024.2.MW. The company stated that it employs an employee who decided to permanently relocate to Poland. The employee’s duties include creating and developing computer software. The employee works remotely from his own home in Poland (the company does not require work from home but allows the employee to work from home at his own request). The employee is not authorized to make any decisions on behalf of the company or sign contracts. The company does not rent any office or other premises, nor does it own any real estate in Poland. Under these circumstances, the company asked whether it has a permanent establishment in Poland, simultaneously expressing its view that a PE does not arise.

Position of the Director of the National Tax Information (KIS)

The Director of KIS took a different position. He pointed out that for a PE to exist, the company must conduct its business wholly or partly through a fixed place. The phrase “through which” should be understood broadly and refer to business activities carried out at a specific location (premises or space) available to the company. According to KIS, the employee’s home qualifies as such a place. The authority indicated that the regular and permanent provision of work by the employee from his residence and at clients’ locations demonstrates the existence of a fixed place, which in this case could be the employee’s home.

Controversies surrounding remote work

It is hard to agree with the authority’s position, especially in an era of widespread remote work. This is further complicated by the fact that the company pointed out that the employee voluntarily works from his own home, a place the company does not control.

Unfortunately, this is not the first negative stance taken by the tax authority. In an interpretation dated March 28, 2022, 0111-KDIB1-2.4010.699.2021.1.ANK, the Director of KIS stated that providing employees with laptops and other necessary IT equipment required for work involves the creation of a fixed place, which could be, for example, the employee’s home. This position was further upheld by the Provincial Administrative Court (WSA) in Gliwice in a ruling on December 6, 2022 (case ref. I SA/Gl 674/22). We are still awaiting the Supreme Administrative Court’s (NSA) decision on this matter.

Tags permanent establishment, praca zdalna, remote work, zakład podatkowy