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23-04-2020 - COVID-19: Impacts on the arising of Permanent Establishments

The global spread of COVID-19 and the resulting health emergency has forced governments to take containment actions, which have resulted in significant impacts on people's freedom of movement not only within Countries, but also between Countries.

In this context, the economic operators had to reorganize their business, by fostering work from home or remotely instead of the usual conditions of employment (i.e. work at the place of business / premises). In other cases, activities not exercisable remotely have suffered inevitable interruptions in accordance with the containment rules adopted.

The above aspects can have various consequences for the tax rights of the various states as set out in the double taxation treaties. In this regard, the OECD has provided useful guidance to overcome uncertainties and avoid misaligned approaches by the tax administrations of the various countries.

In the light of the above, we deem it is appropriate to provide an overview of the guidelines to be followed to respond to the main risks of arising of Permanent Establishments in the current extraordinary context, in order to monitor the existence of any tax obligations in the Source Country.  

Risk: Home Office PE


During the COVID-19 emergency, people typically stay at home and do their work remotely as a result of government containment actions. It may be argued that this circumstance is determined by reasons of force majeure and not by a specific request of companies.

However, it is necessary to pay special attention to the following aspects:

- work from home must not become the usual way of working at the end of the emergency;
- the possible "workspace" at home is not freely accessible (at the disposal) by the company which, on the contrary, provides the worker an office at the “place of business”.

Risk: Agency PE


An employee or agent which habitually concludes contracts from home on behalf of a non-resident company could be regarded as a dependent agent Permanent Establishment of said company.

However, it is unlikely that the activity in the source Country will be considered habitual if the employee/agent works at home in that Country only for a short period due to force majeure and/or containment actions carried out by governments, which affect the way the work is normally carried out.

The conclusions may be different if the employee/agent, even before the spread of COVID-19, routinely concluded from home contracts on behalf of the foreign company.

Risk: Construction site PE


According to Paragraph 55 of the Commentary on Article 5, Paragraph 3, of the OECD Model Tax Convention, temporary interruptions of a construction / assembly / installation site due, for example to:

- bad weather conditions
- shortage of materials
- labour difficulties

do not interfere with the calculation of the duration of the site for the purpose of verifying the duration clause (12 months in the OECD model).

These considerations also apply to interruptions caused by COVID-19 restrictions, which could delay the construction project and, as a result, lead to the arising of a Permanent Establishment. 

For prior information about Covid-19 and the measures adopted by the Italian Government please also see:


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