The Organisation for Economic Co-Operation and Development (OECD) published an analysis entitled “OECD” Secretariat Analysis of Tax Treaty and the Impact of the COVID-19 Crisis”. (OECD Analysis). The OECD Analysis provides guidance on cross-border tax issues arising from the COVID-19 pandemic. The analysis mentioned the lead to creation of PERMANENT ESTABLISHMENT or change in the tax residence status. Due to the government implementation of various quarantine measures and travel restriction. 

FAQ about Tax Treaty implementation during Pandemic

Question 1

During the pandemic, my employees are working from home. Can I define HOME OFFICE as a PERMANENT ESTABLISHMENT in the tax treaty?


No, it is not a PERMANENT ESTABLISHMENT in the tax treaty. Working from home is an Exceptional and Temporary Change of the location where employees exercise their employment because of the Pandemic. 

Question 2:

During the pandemic, an employee has to work from home temporarily. In fact, the employee is working for an overseas enterprise with an official employment contract. The home office located in Hong Kong, China. And the employee is exercising the employment such as concluding contracts with trading partners. Is it a PERMANENT ESTABLISHMENT in the tax treaty? 


No, it is not a PERMANENT ESTABLISHMENT. Employees working temporarily from home and concluding contracts in their home jurisdictions on behalf of their foreign employers for short period of time. Rather than as the normal routine because of government directives are unlikely to be regarded as Habitually concludes contracts on behalf of the enterprise”. Therefore, it should not create Permanent Establish for the enterprises.

Question 3:

For construction sites that have been temporarily suspended due to the pandemic. Not due to a shortage of material or labour. The construction project is overrun. When calculating the duration of the project. Can I deduct the suspension days from the total project day for a PERMANENT ESTABLISHMENT in the tax treaty?


The construction sites suspended due to the pandemic and caused project overrun. The number of days of the overrun can deduct from the number of project completion day. So, it is not a PERMANENT ESTABLISHMENT.

However, the period of temporary interruption of activities on a construction site. Due to shortage of labour or material. In that scenario, the suspension needs to include in a PERMANENT ESTABLISHMENT. 

Question 4:

During the pandemic, there is a change in location of decision making from top management. Does it affect the place of effective management and make change of the resident status?


Temporary relocation or inability to travel of chief executive officers or other top management officers of an entity. This should not trigger a change in the tax residency of the entity under a tax treaty or create the issue of dual residency. 

Question 5:

During the pandemic, it caused changes in the places of residence of some people. It may appear that they constitute resident individuals under the respective tax laws of the parties to the tax treaty. How to solve this dual resident personal status problem? 


A temporary dislocation of an individual by reason of the pandemic will unlikely the individual’s tax residency when the tie-breaker rules for dual residency in tax treaty are applied.


For further information, please contact us. 


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