We wrote about the original version of the OECD manual last spring in the article Approach of the OECD to the Assessment of International Tax Aspects in Relation to COVID 19 Measures.

Since the updated version does not bring any fundamental new arguments (compared to the original version), we would like to summarise the main ideas of the OECD recommendations in several points:

• According to the interpretation, working from home (so-called home office) as a result of the measures against COVID-19 should not constitute the fulfilment of the conditions for setting up a permanent establishment as a fixed place. However, it is important to properly assess the relevant situation and functioning of the home office regime, especially with regard to temporary and disposition aspects.
• A similar approach should be taken in respect of the negotiation and conclusion of contracts or acts through dependent representatives, which is non-standard as a result of anti-epidemic measures – e.g. also in other jurisdictions. This temporary arrangement should not constitute the fulfilment of the conditions for establishing a permanent establishment by the action of a dependent representative.
• For construction and assembly projects, a time limit is generally essential for assessing the fulfilment of the conditions for setting up a permanent establishment. The OECD recommends that individual countries consider whether the time test is interrupted as a result of the measures.
• A temporary change in the actions of the members of a company’s executive bodies and their decision-making from different locations (again as a result of the COVID-19 measures) should not lead to a change in the assessment of the place of effective management – i.e. the tax residence of the company concerned.

In addition to the above areas, the updated version also addresses the view of taxation of employment income for persons working in a different state than normally (or the right to tax such income). In view of the duration of various restrictions or preventive measures, this problem is very topical, as in practice, it affects the situations of individual employees and companies. Some countries (where cross-border commuting normally works) have concluded bilateral agreements with each other on how to proceed in these situations.

If your employees are working from home or in offices in other countries as a result of the anti-epidemic measures, we recommend that you verify the potential tax (or legal) impacts from the country’s local perspective. However, from the Czech Republic’s point of view, no specific guidance or special agreement with other countries has been concluded yet. It is, therefore, necessary to follow the standard provisions of Czech legislation and the relevant articles of double taxation conventions (and to potentially consider whether the OECD interpretation above can be applied to the situation in question).