Cross-Border Home Office versus Permanent Establishment
- IG-TAX
- 4 days ago
- 2 min read
The increasing mobility of employees and the growing prevalence of home office arrangements have, in recent years, repeatedly raised the question of whether such activities may give rise to a home office permanent establishment for the employer. The OECD update of November 2025 (Organisation for Economic Co-operation and Development) provides detailed and concrete rules for assessing home office permanent establishments.
Home Office Does Not Automatically Constitute a Permanent Establishment
According to the OECD, the mere fact that employees work from home abroad does not automatically result in the creation of a permanent establishment. The decisive factors are always the specific circumstances of the individual case, in particular the duration, regularity, and nature of the activities performed.
For a permanent establishment to exist, the place of business must be “fixed.” This means that it is used regularly for business purposes over a longer period of time. As a rule, no permanent establishment is created if the place is used for less than six months.
A certain degree of permanence and thus continuous use is required to establish a permanent establishment. Occasional or sporadic use of a home office is not sufficient.
50 Percent Threshold as a Guideline
For the first time, the OECD introduces a quantitative threshold. If less than 50% of the working time within a 12-month period is performed in a home office abroad, there is generally no fixed place of business. Only where the majority of work is carried out in the home office is a more in-depth assessment required. This threshold serves as a practical guideline but does not replace an individual case-by-case analysis.
Economic Rationale as a Key Criterion
Even in cases of extensive home office use, a permanent establishment does not arise automatically. According to the OECD, the decisive factor is whether there is an economic rationale for the activity being carried out at that specific location. If the home office is used exclusively for the private convenience of the employee, this argues against the existence of a permanent establishment. Conversely, if there is a clear business benefit, such as customer interaction or market presence in the relevant jurisdiction, a permanent establishment may be established.
More Than Just the Traditional Home Office
The OECD guidelines apply not only to traditional private residences but also to other private locations from which work is carried out on a regular basis, such as second homes or holiday accommodations. The same assessment criteria apply in these cases.
Practical Implications
It remains to be seen how the Austrian tax authorities will interpret and apply the new rules. An adjustment of the Austrian Transfer Pricing Guidelines in line with the new OECD standards would lead to greater legal certainty with regard to cross-border home office permanent establishments. In any event, the importance of clear internal policies and thorough documentation of home office arrangements is increasing, particularly in cross-border scenarios.
If you have any questions, our experts Irene Grass and Martin Schmidt will be happy to assist you.
Photo: Wixmedia
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