New OECD guidance on application of tax treaties during COVID-19

New OECD guidance on application of tax treaties

Guidance covers cross-border home working, place of effective management, and personal residence/ employment taxes.


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On 21 January 2021 the OECD Secretariat issued updated guidance on how tax treaties should be applied in the context of the dislocation of individuals and disruption to economic activities resulting from the pandemic. The guidance expands on earlier guidance published by the Secretariat in April 2020. The guidance is issued by the OECD Secretariat supported by Working Party One of the BEPS Inclusive Framework. It contains a caveat that it does not necessarily represent the official views of OECD member countries, that it does not purport to replace the judgement of tax administrations in cases where factual determinations are required, and that each jurisdiction may adopt an approach that differs from that in the guidance. The guidance therefore is not as authoritative as the Commentary on the OECD Model Treaty (The Commentary). This makes it particularly important to obtain advice on specific cases in the countries involved.

This article is limited to the corporate tax aspects of the guidance, which is articulated around the main areas of fixed place permanent establishment (PE), dependent agent PE, and place of effective management.

Fixed place PE

Where an employee of an enterprise of one state works from a home in the other state, the home will be a PE only if:

  1. The home is ’at the disposal’ of the enterprise, and
  2. The arrangement lasts long enough to meet the requirement of permanence.

On the first point, the guidance refers to the Commentary, which indicates that the home should be regarded as not being ’at the disposal’ of the enterprise in the case of a cross-border worker employed by an enterprise of a state, even where the worker performs most of their work from their home in the other state rather than from the office made available to them in the first state, so long as it is clear that the enterprise did not require the employee to use the home for business activities.

On the second point, the guidance indicates that an employee of an enterprise of one state teleworking from a home in the other state as a result of the public health measures imposed or recommended by either or both states, would not create a PE because the arrangement lacks the requisite degree of permanence.

The guidance adds that a home office may be considered to have acquired a degree of permanence if the teleworking arrangement continues after the public health measures have ended, but even then the home will only be a PE if it is regarded as ’at the disposal’ of the enterprise under the criteria referred to above.    

Dependent agent PE

The guidance says that if an employee of an enterprise of one state concludes contracts on behalf of the enterprise while the employee is, exceptionally, working from a home in the other state as a result of public health measures imposed or recommended by the government of either state, such conclusion of contracts should not be regarded as habitual, and therefore should not give rise to a dependent agent PE, unless it was already taking place before the pandemic.

Place of Effective Management

The guidance indicates that residence of a company under the tie-break in a treaty, including the place of effective management test under the ’pre-BEPS’ Model Treaty wording and the competent authority mechanism in the 2017 Model Treaty, is unlikely to be impacted by the fact that the individuals participating in the company’s management and decision making cannot travel as a result of a public health measure imposed or recommended by the government of at least one of the states involved.

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