In the course of the Corona crisis, the tax authorities clarified that Corona-related activity in the home office qualifies as force majeure. Consequently, no permanent establishment was established as an exception. Furthermore, it was explained that this exception only applies if home office does not become the rule. Conversely, this would mean that after the expiration of the Corona-related restrictions, no significant part of the working time may be performed in the home office in order to deny the establishment of a permanent establishment.
In various EAS notices, the Federal Ministry of Finance confirmed that under both national and DTT law, an employee’s private residence can constitute a permanent establishment for the employer, whereby the employer is assumed to have “de facto” power of disposal over the employee’s private premises. This argumentation has sometimes been sharply criticized in the literature. Overall, it should be noted from our consulting practice that this is difficult to understand, especially for foreign companies, and certainly does not contribute to the attractiveness of Austria as a business location. This is particularly true in view of the fact that most countries only consider the issue of home offices to justify a permanent establishment in exceptional cases, if at all. Thus, qualification conflicts arose, in particular with Germany. This was not about reducing the tax burden – the tax burden in Austria and Germany is comparable (high) – it is about the risk of double taxation: Austria establishes a permanent establishment on the basis of home office and taxes the share of earnings attributable to this permanent establishment. So far so good. Due to the fact that Germany does not qualify the home office as a permanent establishment, Germany consequently taxes the entire company result – including the part already taxed in Austria. This results in double taxation including additional administrative work and costs for the company. This is not acceptable, especially when one considers how long mutual agreement procedures etc. can take and how much the procedure costs – and this “only” to ensure a one-time taxation! The Austrian approach may also be criticized in an international context, since it is questionable to what extent it makes sense here as one of a few countries to undertake its own uncoordinated qualification of the concept of permanent establishment in an international context.
Movement in the right direction – ruling by the administrative court of justice
In its decision of 22.6.2022, Ro 2022713/0004-7, the administrative court of justice ruled on the question of the power of disposal in connection with the establishment of a permanent establishment. This ruling has attracted so much attention because, on the one hand, decisions of the Administrative Court on the concept of a permanent establishment are rare and, on the other hand, because it at least takes the wind out of the sails of the concept of “de facto power of disposal” of the employer over the private residence of an employee, as coined by the Federal Ministry of Finance. This is crucial when assessing whether a home office can lead to a permanent establishment for the employer.
What is this judgment about?
An interpreter based in Hungary shared the desk of another person in a building in Austria for a few hours a day. Likewise, she had access to the office infrastructure. The federal financial court already ruled on 20.2.2020 RV/7102485/2019 that if a desk is shared on a case-by-case basis, it cannot be assumed to be a fixed facility. This was justified, among other things, by the fact that in addition to the desk, the entire room would have to be available, including other furnishings (cabinets, files, etc.). The federal financial court denied that the interpreter had the power to dispose of the room at any time. In addition, the interpreter had spent most of her time outside these rooms with her clients (e.g. on visits to authorities, etc.). She also practiced her profession at her Hungarian place of residence.
Based on the appeal filed by the taxpayer with the Administrative Court, the latter ruled as follows: it denied the existence of a permanent establishment, since “the possibility of sharing a desk in the office premises of another taxpayer is not sufficient to affirm the power of disposal over a fixed place of business….”
Effects on the topic of home offices as permanent establishments?
The decisive factor for the establishment of a permanent establishment through an employee’s home office is that the employer has the power of disposal over the home office. The above-mentioned administrative court of justice ruling allows the argumentation that a home office is certainly not suitable for giving the employer the power of disposal over the employee’s private premises. The employer will probably not be able to be attributed more than a mere possibility of shared use as long as the employee can refuse access; based on the administrative court of justice ruling, this is in any case insufficient to establish a permanent establishment. An exception would probably be in the case of living quarters made available by the employer (company apartments).
In most cases, the question of whether a home office can constitute a permanent establishment will be clarified in the future? No. Clearly, this question must be examined in each individual case on the basis of the specific facts of the case – in any case, the Administrative Court ruling is more than a good argument. It remains to be seen to what extent the tax authorities will react to the Supreme Court ruling.
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PS: Please note, that we are no native speakers and that our blogposts were translated with the help of google translate.