OECD guidance on the tax treaty implications of the COVID-19 pandemic 


22 January 2021

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On 21 January 2021, the OECD Secretariat released Updated guidance on tax treaties and the impact of the COVID-19 crisis (‘the Guidance’). The Guidance considers the interpretation of tax treaty articles on the creation of permanent establishments, tax residence of companies and individuals, and taxation of income from employment. The Guidance revisits and updates earlier guidance published by the OECD Secretariat in April 2020.

Deloitte Comments

The original guidance was issued by the OECD as an urgent response to the impact of the COVID-19 pandemic on tax treaties and focused on the effects of temporary changes to the location of employees. Several months on, restrictions and disruption remain and the Guidance has been updated accordingly. The updated Guidance focusses on ‘public health restrictions’ which include, but is broader than, the ‘travel restrictions’ discussed in the earlier guidance. It also talks about measures ‘imposed or recommended’ by governments, which is more comprehensive than the earlier guidance’s focus on ‘government directives’.

The Guidance represents the views of the OECD Secretariat. It reflects the general approach taken by tax authorities but each tax authority may adopt its own approach and tax authorities will continue to make factual determinations. The updated Guidance makes clear that its objective is to resolve instances of potential double taxation but that it cannot be relied on to create situations where there is no tax (‘instances of double non-taxation’). 

The Guidance does not take away from the facts and circumstances of each case, and these will be determinative. The Guidance considers that exceptional and temporary changes in the location where employees undertake their work because of the COVID-19 pandemic should not, in general, create a new permanent establishment. It is also considered unlikely that a temporary change in the location of board members as a result of the COVID-19 pandemic will change the residence status of an entity under a tax treaty.

The residence of individuals and employment taxes are also considered, and there will be varying levels of complexity in applying the treaty rules.  For example, for many individuals who relocated from the UK relatively recently, but who returned to the UK because of the pandemic, the analysis is likely to be especially complex. Considering a sufficiently long period in the context of habitual abode may bring into play periods of long-term UK tax residence prior to their relocation. The Guidance acknowledges that there may be more cases that have to be referred to the mutual agreement procedure (MAP) to determine treaty residence as a result. Tax authorities are encouraged to apply MAP efficiently and pragmatically to help resolve issues arising out of the COVID-19 pandemic.

The Guidance is relevant only to circumstances arising during the COVID-19 pandemic when public health measures are in effect. Any permanent changes to the facts and circumstances will require further consideration under normal principles e.g. permanent closure of offices previously available to employees.

Permanent establishments

The Guidance recognises that some businesses may be concerned that employees could create a permanent establishment if they are working from home in a country other than that in which they regularly work. The creation of a permanent establishment could create new tax and filing obligations for the business.

The Guidance includes a sample of guidance issued by a number of tax authorities- Australia, Austria, Canada, Germany, Greece, Ireland, New Zealand, the UK and the US.

Home office and fixed place of business permanent establishments

As set out in the OECD Commentary on the permanent establishment article of the OECD Model Tax Convention (Article 5), the issue of whether a fixed place of business permanent establishment exists is based on facts and circumstances but the fixed place must have both a degree of permanence and be at the disposal of the business.

Even though part of a business may be carried on at a home office, that should not automatically lead to the conclusion that the home office is at the disposal of the business. The carrying on of intermittent business activities at a home office does not make the home office at the disposal of the business. A home office may however be a permanent establishment if it is used on a continuous basis for carrying out the business and the individual is required to use the home office to carry out the business.

Whether the employee is required by the business to work from home is an important factor. The Guidance considers that individuals working from a home office as a result of a public health measure imposed or recommended by at least one of the relevant countries are not doing so because of any requirement from the business. In addition, an office is still provided by the business which, in the absence of public health measures, would be available to the employee.

The Guidance therefore indicates that working from a home office as a result of public health measures would not create a fixed place of business permanent establishment, either because the arrangement lacks a sufficient degree of permanence or continuity, or the home office is not at the disposal of the business.

The home office may be considered to have a degree of permanence if an individual continues to work from home once public health measures imposed or recommended by the government have ceased. Following any permanent change to the individual’s working arrangements, the facts and circumstances would determine whether the home office is at the disposal of the business such that a permanent establishment is created.

Agency permanent establishments

Under the current OECD Model Tax Convention, a dependent agent permanent establishment arises where a person habitually concludes contracts, or habitually plays the principal role leading to the conclusion of contracts, on behalf of a non-resident business. The OECD Commentary states that this presence should be more than ‘merely transitory’.

The Guidance considers that, if an employee or agent is only working from home because of public health measures imposed or recommended by the relevant governments, their activity is unlikely to be regarded as habitual. A dependent agent permanent establishment should not therefore arise.

A different approach may be appropriate if the individual was habitually concluding contracts on behalf of the non-resident business in their home country before the COVID-19 pandemic. Likewise, if the employee continues to work from home after the COVID-19 pandemic it would be more likely that the employee would be considered to habitually conclude contracts on behalf of the non-resident business.

Construction site permanent establishments

Under the OECD Model Tax Convention, a construction site will constitute a permanent establishment where the site lasts more than twelve months. The OECD Commentary states that a site should not be regarded as ceasing to exist when work is temporarily discontinued (e.g. due to weather) and that any such periods of temporary interruption should be included in the calculation of the duration of the construction site.

There is no bright light test in the OECD Commentary as to whether an interruption is ‘temporary’ and the Guidance notes that countries may have different views. Some countries may consider that periods of interruption as a result of public health measures imposed or recommended by the government where the site is located should be excluded from the calculation of time thresholds.

Corporate and individual residence


The pandemic may raise concerns about potential changes in the place of effective management of a company due to the relocation, or inability to travel, of board members or senior executives. The Guidance considers it unlikely that the COVID-19 situation will create any changes to an entity’s residence status under a tax treaty.

If a company is considered a resident of two countries simultaneously under their domestic laws, the tie-breaker rules within the relevant tax treaty would need to be considered to determine the country of residence for tax treaty purposes:

  • If the treaty contains a provision like the 2017 OECD Model tie-breaker, the competent authorities are required to deal with dual residence on a case-by-case basis by mutual agreement. Such a determination will take into consideration all of the facts and circumstances over the determination period, and a range of factors are taken into consideration.
  • Where the treaty contains the pre-2017 OECD Model tie-breaker rule, the place of effective management will be the only criterion used.

Based on the OECD Model Tax Convention and its Commentary, the Guidance considers that all relevant facts and circumstances should be examined to determine the ‘usual’ and ‘ordinary’ place of effective management, and not only those that pertain to an exceptional period such as the COVID-19 pandemic. It concludes that the treaty tie-breaker outcome is unlikely to be affected by the fact that the individuals participating in the management and decision-making of an entity cannot travel as a result of a public health measure imposed or recommended by at least one of the governments of the countries involved.

The Guidance includes a sample of guidance on company residence issued by a number of tax authorities: Australia, Canada, Greece, Ireland, New Zealand, the UK and the US.


The Guidance indicates that the tax residence of individuals, and their treaty residence, would not normally be affected by a temporary dislocation of employees from their normal place of work because of COVID-19.

However, it goes on to consider two distinct situations, where an individual who is temporarily away from home, perhaps on holiday, is stranded in a host location, and where a person who has become tax resident in a country where they are working, returns to their previous home location as a result of COVID-19. In the first case, the guidance suggests the individual would be unlikely to become resident in the host country, but goes on to say that if they did, they would normally remain treaty resident in the home country under the tie-breaker in the relevant treaty. In the second case, however, there is a recognition that while a return ‘home’ might not change anything if it was exceptional and temporary, the position could be more complex e.g. if their connections to their previous home remain stronger than those to their working and residence location immediately before the pandemic.

In practice, determining the treaty residence of individuals in this second group is likely to be more complex, especially where a temporary dislocation continues beyond the point at which government-imposed public health restrictions are lifted. The Guidance recognises that returning to the previous home location might be regarded as tipping the balance of social and economic ties to that country, rather than to the pre-pandemic home. In this situation the habitual abode test would usually be considered, and the Guidance stresses the need to consider a sufficient length of time to ascertain the frequency, duration and regularity of visits to both countries, that form part of the individuals’ settled routine, disregarding the impact of time spent in a particular location, because of government-imposed COVID-related travel restrictions. 

A sample of guidance issued by the following tax authorities is included: Australia, Canada, Finland, France, Greece, India, Ireland, New Zealand, UK and the US.

Income from employment

Consideration is given to the 183 day exemption in the Employment Income article of the OECD Model Tax Convention and the extent to which COVID-related days of presence may be ignored in considering the 183 days limit. The OECD Commentary permits the exclusion of days attributable to sickness in cases where the employee would otherwise have qualified for exemption from tax in the host location.

The Guidance confirms that where an employee is prevented from travelling because of public health measures it would be reasonable to ignore any such days, but recognises that some countries will take a different view. Businesses are encouraged to liaise with the tax authorities concerned.

In cases where cross-border workers receive income (such as a wage subsidy) from the government of the country in which they normally work, the payment would be attributable to the work country under the Employment Income article of the OECD Model Tax Convention.

Some countries have agreed special treaty provisions with neighbouring countries to which employees frequently commute for work and these provisions may allocate taxing rights in a different way to the OECD Model Tax Convention. The Guidance notes that some countries have agreed that time spent by an employee working from their home country will be considered as force majeure or exceptional circumstance and will not be included in calculations of work days for the purposes of the treaty. 

The Guidance includes a sample of guidance issued by a number of tax authorities- Australia, Austria, Canada, Finland, Germany, Greece, Ireland, New Zealand, the UK and the US. 

Deloitte EMEA Dbriefs webcast

Deloitte’s EMEA Dbriefs webcast programme will include a discussion on the tax treaty implications of COVID-19 on 11 February 2021 at 12:00 GMT (13:00 CET). Register for the webcast here or at www.emeadbriefs.com.