March 2021 - The OECD’s updated position on permanent establishment and residency due to COVID-19 pandemic

The COVID-19 pandemic has lasted for over one year now. The Organisation for Economic Co-operation and Development (“OECD”) has been following the pandemic closely, issuing guidance on the temporary change of work location because of travel restriction giving rise to the creation of permanent establishment (“PE”) or change in residence status of corporations, and guidance on transfer pricing.

Mazars had issued our Tax Newsletters in April, 2020 and in February, 2021 on the development from the OECD in the above two matters respectively.

Because of the pro-longed pandemic situation, the OECD finds it necessary to update its initial views issued in April, 2020. The updated view by the OECD was issued in the “Updated guidance on tax treaties and the impact of the COVID-19 pandemic” (“the Guidance”) on January 21, 2021. The latest views of the OECD are largely consistent with the initial analysis in April 2020. There are however some additional comments.

In Detail

The Guidance discusses the OECD’s views on the application of tax treaty rules during the COVID-19 pandemic in three areas:

The un-intended creation of PE and the interruption of construction sites;
Changes in residence for entities and individuals and the application of tie-breaking rules to dual residents and
Income from employment.

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