Working remotely from Greece – Risk of a permanent establishment for the foreign employer

Working remotely from Greece – Risk of a permanent establishment for the foreign employer

In the post-COVID 19 era, where the global mobility of employees and the cross-border remote working have increased dramatically, there are a number of tax issues that arise for both the foreign employer and the remote worker. One of the associated tax issues relates to the risk of a permanent establishment for income tax purposes being created for the foreign employer in the country from where the employee is working remotely from a home office.

Α.Legislative Framework

The assessment of whether a PE of a foreign employer company may be created in Greece is made on the basis of the applicable provisions of the Double Tax Treaty (DTT) between Greece and the respective State where the employer is tax resident (which supersede the domestic legislation) as well as article 6 of the Greek Income Tax Code (ITC), which is in line with the definition and terms of the OECD Model Tax Convention. For the interpretation and application of the PE rules, the Greek tax authorities follow the guidelines included in the OECD Commentary on the Model Tax Convention.

• Article 6 of the Greek Income Tax Code (ITC)

1. “Permanent establishment” means the fixed place of business through which the business of the undertaking is wholly or partly carried on.
2. The term “permanent establishment” includes mainly: (a) a place of management; (b) a branch; (c) an office; (d) a factory; (e) a laboratory, and (f) a mine, quarry, source of oil or gas or any other place of extraction of natural resources.
3. The construction site or a construction or assembly project or related surveillance activities related thereto are considered to be a permanent establishment only if it lasts for a period of more than three (3) months.
4. Notwithstanding the foregoing provisions of this Article, the term “permanent establishment” is deemed not to include:
   (a) the use of facilities solely for the purpose of storage, display or delivery of goods or merchandise belonging to the undertaking; (b) the maintenance of a stock of goods or merchandise belonging to the undertaking solely for the purpose of storage, display or delivery; (c) the maintenance of a stock of goods or merchandise belonging to the undertaking solely for the purpose of processing by another undertaking; (d) the maintenance of a fixed place of business solely for the purpose of purchasing goods or merchandise or of collecting information concerning the undertaking; (e) the maintenance of a fixed place of business solely for the purpose of carrying on, for the undertaking, any other preparatory or auxiliary activity; (f) the maintenance of a fixed place of business solely for the purpose of combining the tasks referred to in (a) to (e) thereof, provided that the total activity of the fixed place of business resulting from that combination is of a preparatory or ancillary nature.
5. Notwithstanding the provisions of paragraphs 1 and 2, where a person, other than the independent agent to whom paragraph 6 applies, acts on behalf of the undertaking and has the authority, which normally exercises in Greece, to enter into agreements on behalf of the undertaking, then that undertaking shall be deemed to have its permanent establishment in Greece in respect of the activities which that person undertakes on its behalf, unless the activities of that person are limited to those set out in paragraph 4, which do not make that place a permanent establishment under the provisions of this paragraph even if they are carried out through a fixed place of business.
6. A company is not considered to have a permanent establishment in Greece if its activity is limited to conducting business through a broker, general commission agent or any other independent agent, provided that such persons are acting in the ordinary course of their business.
7. The fact that an undertaking that is a tax resident in Greece controls or is controlled by another undertaking that is resident in another State or which carries out operations through a permanent establishment or otherwise in that other State does not in itself make the first undertaking a permanent establishment of the second.

• OECD Commentary on the Model Tax Convention

Further, according to the OECD Commentary, as in force, the definition of permanent establishment contains the following conditions:

• the existence of “place of business”

Based on par. 11 and 12 article 5 of the OECD Commentary, the mere fact that an enterprise has a certain amount of space at its disposal which is used for business activities is sufficient to constitute a place of business. No formal legal right to use that place is therefore required. However, the mere presence of an enterprise at a particular location, does not necessarily mean that the location is at the disposal of the enterprise. Whether a location may be considered to be at the disposal of an enterprise in such a way that a PE may be created will depend on that enterprise having the effective power to use that location as well as the extent of the presence of the enterprise at that location and the activities it performs there.

Based on par. 18 of the OECD Commentary, even though part of the business of an enterprise may be carried on at a location such as an individuals’ home office, that should not lead to the automatic conclusion that that location is at the disposal of that enterprise simply because that location is used by an individual (e.g. employee) who works for the enterprise. Whether or not a home office constitutes a location at the disposal of the enterprise will depend on the facts and circumstances of each case. In many cases, the carrying on of business activities at the home of an individual (employee) will be so intermittent or incidental that the home will not be considered a location at the disposal of the enterprise. Where however a home office is used on a continuous basis for carrying on business activities for an enterprise and it is clear from the facts and circumstances that the enterprise has required the individual to use that location to carry on the enterprise’s business (e.g. by not providing an office to an employee where the nature of the employment clearly requires an office), the home office may be considered to be at the disposal of the enterprise.

Furthermore, based on par. 19 of the OECD Commentary, when a cross-frontier worker performs most of his work from his home situated in one State rather than from the office made available to him in the other State, one should not consider that the home is at the disposal of the enterprise because the enterprise did not require that the home be used for its business activities.

• this place must be “fixed” i.e. it must be established at a distinct place with a certain degree of permanence;

Experience has shown that permanent establishment normally has not been considered to exist in situations where business had been carried on in a country through a place of business that was maintained for less than six (6) months.

• the carrying on of the business of the enterprise through this fixed place of business.

This means usually that the persons who, in one way or another, are dependent on the enterprise (personnel) conduct the business of the enterprise in the State in which the fixed place is situated.

Lastly, even where a fixed place of business is not found to exist, a PE may still be created if the activities of the employee are such that create a dependent agent PE. A dependent agent PE may be created when the employee acts on behalf of the company and, in doing so, habitually concludes contracts or habitually negotiates contracts i.e. plays the principal role leading to the conclusion of contracts that are then routinely concluded without any material modification by the company. In this case, the PE is created merely on the basis of the above activities of the employee and does not depend on the existence or not of a fixed place of business at the disposal of the company.

Β.Conclusive Remarks

Based on the above legislative framework, a PE may be created under two set of circumstances, namely either as a Fixed Place of Business PE (the FPOB PE) or as a Dependent Agent PE (the DA PE).

• Fixed Place of Business PE (FPOB PE)

Where the actual facts are such that the remote worker carries on the regular/core business activities of the foreign employer company, that are not of an auxiliary or preparatory nature, and the remote working lasts long enough to be considered as having the required degree of permanency (i.e. usually that threshold is more than 6 months), the question of whether a PE would be created for the foreign employer company in Greece would ultimately come down to whether the home office can be considered as being at the disposal of the employer, i.e. that the employer has effective power to use that home office, so that it qualifies as a fixed place of business through which the business activities of the company are partly or wholly carried on.

In this respect, based on the OECD Commentary noted above, the home office is considered to be at the disposal of the employer if the employer has required the employee to use the premises of the home as an office, e.g. by not providing an office to an employee where the nature of the employment clearly requires an office. The intention of the parties seems to be decisive for the assessment of a PE in circumstances such as the above.

Within this context, the following decisive elements should be taken into consideration for the assessment of the PE risk:

• Whether the foreign employer company has assigned itself the employee to Greece for its own interest or whether the employee personally has unilaterally taken the decision to work remotely from Greece e.g. for personal/family reasons;
• Whether the remote working is indefinite and constitutes a permanent change in the working arrangements between the foreign employer company and the employee;
• Whether the foreign employer has requested the employee to work from his home office in Greece, either directly or indirectly i.e. by not providing the employee with an office available in the State of the employer;
• Whether the employer bears any expenses or reimburses the employee for any expenses relating to the home office in Greece, such as rent, utilities etc.

Any documentation, such as the employment contract or any private agreement/document between the employee and the foreign employer, describing the specific facts and circumstances of the current working conditions could serve as supporting documentation.

We should not fail to note that the above comments are based on the currently applicable guidelines of the OECD Commentary, which, however, may be considered to be outdated, since they have not been amended after 2017 and therefore do not take into account fact patterns that arise in the current, post COVID-19 global situation where work-mobility and remote working have increased considerably and tend to become a new norm.

In fact, the OECD had issued explicit guidance in April 2020 and in January 2021 on tax treaties and the impact of the COVID-19 pandemic, which were also adopted by the Greek Tax Authorities (Circulars E. 2113/2020 and E. 2130/2021). However, such guidance was based on the exceptional circumstances arising during the COVID-19 pandemic when public health measures and travel restrictions were in effect and individuals were stranded in a jurisdiction that was not their jurisdiction of residence, so it was temporary in nature and applied for that time. It is worth noting though that said guideline re-emphasized the criteria of the existing OECD Commentary.

In any case, given that Greece (as most countries) has not yet issued any more recent, explicit regulations or guidance for the assessment of the PE of a foreign company on the basis of remote working of its employees or any other criteria that would render the home office at the disposal of the foreign employer, the existing OECD guidelines remain the only available assessment tests for the moment. However, the Greek tax authorities (e.g. upon a tax audit) may assess the situation differently and adopt a different position. Moreover, it should be underlined that each case should be assessed separately, on a standalone basis, depending on its specific actual facts and circumstances.

• Dependent Agent PE

Even where the employee’s home office is not considered to be at the disposal of the employer and therefore does not trigger a FPOB PE, a PE may still be created if the employee is considered to be a dependent agent i.e. a person who acts on behalf of the company and, in doing so, habitually concludes contracts or habitually plays the principal role leading to the conclusion of contracts that are then routinely concluded without any material modification by the company.

For the assessment of whether the remote worker will create such a dependent agent PE for the foreign employer, the crucial element is the content of the employee’s business activities in Greece, based on their actual role and responsibilities.

 

*             The information is accurate to the best of our knowledge as at the time of writing. We have no obligation to update it. We accept no responsibility against any third party who is not a client of the firm and has not signed the terms of our engagement.