Does working at home change your tax status?

OECD regulations

Neither double tax treaties nor the OECD Model Tax Convention regulate this issue directly. However, some guidance can be found in the commentary to the OECD Model Tax Convention: “PE may also be established if the employee uses an office in their own home if the home is regularly used for the employer’s business as a result of instructions received from them”. Therefore, in principle, a PE may also be established when the employee does not have an office provided, although the need to have an office results from the nature of the employment relationship.

Polish solution 

The Polish tax authorities broadly refer to the above guidance and present a prevailing standpoint, according to which, a home office may create a PE. Such a stance has been taken in numerous individual tax rulings. This view is also shared by some administrative courts, while other courts present the opposite view. 

Based on judgments and tax rulings issued in Poland, a home office will not always create a PE of a foreign company. To create a PE, the home office model should meet the following conditions: 

• Cooperation should be conducted on a continuous and regular basis;
• The employee’s significant activities must result in the need for an office;
• The employee must use the home office regularly as a result of the company’s orders; 
• The company should oblige the employee to use their home to conduct business for the company; and
• Activities performed by an employee working from home may not be limited to preparatory or auxiliary functions. 

Lack of clarity

The criteria above are vague and have not been regulated in any statutory act, and were developed as a result of judicial practice. Attempts to deal with this issue by the Polish courts and tax authorities show that we are dealing with a relatively new problem which has not yet been regulated by law. 

Unfortunately, this causes uncertainty and the lack of clear guidelines means companies are unsure whether they have PE in a foreign country and whether they have to pay taxes there. Therefore, ideally, consensus should be reached at an international level. 

Failure to do so may result in inconsistent solutions implemented by individual countries. This could result in companies discouraging employees working from home, which in the long run could mean a drop in competitiveness and employee wellbeing.

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Piotr Prokocki specialises in comprehensive tax services for M&A and develops effective structures for financing transactions, capital withdrawal, and profit distribution.