Tax treaties will help determine which country can tax an individual or company when coronavirus-related travel restrictions make it unclear how to interpret normal rules, according to the OECD.
In guidance released Friday, the Organization for Economic Cooperation and Development explained how countries can interpret treaties in instances where employees are stranded abroad or working remotely due to the crisis.
Under normal circumstances, when key employees, such as those who conclude contracts, are working in a jurisdiction, it can trigger permanent establishment—a taxable presence in that jurisdiction.
That’s unlikely in situations where the jurisdiction in question has a tax treaty with the company’s home country, the OECD said, because treaties usually say a PE should have a degree of permanence.
Domestic laws may have lower thresholds at which companies trigger taxable presence, so countries should issue guidance on how they will apply their own PE provisions during the crisis, the OECD said.
Treaties can also help resolve questions about whether companies have met requirements for corporate tax residency, as well as where cross-border employees’ incomes should be attributed, the guidance said. The document provides analysis of how tax authorities should interpret those questions, as well as issues relating to individuals’ tax residency, under treaties on the OECD model.
Pascal Saint-Amans, director of the OECD’s Center for Tax Policy and Administration, called for governments to work together.
“The exceptional circumstances of the COVID-19 crisis call for an exceptional level of coordination and co-operation between countries, notably on tax issues, to mitigate the potentially significant compliance and administrative costs for employees and employers,” he wrote Friday in a post.