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March 9, 2023
PE Watch: Latest developments and trends, March 2023
PE domestic law
Ireland extends tax treatment of Ukrainians working remotely in Ireland
On 7 February 2023, Irish Revenue issued eBrief No. 028/23 extending its concessional treatment of Ukrainians working remotely in Ireland which was previously outlined in Revenue eBrief No. 090/22. Broadly, eBrief No. 090/22 provided that, in addition to an employment income concession, the Irish Revenue would disregard the presence, for corporation tax purposes, of an employee, director, service provider or agent who would have continued to be present in Ukraine but for the war there.
This concession will now apply for the tax year 2023 subject to the qualifying conditions which are outlined in eBrief No. 090/22. The individual/company should keep records, documents or other evidence indicating the date that the individual came to Ireland and that they performed their work or duties in Ireland as a result of the war in Ukraine.
Qatar amends taxation of foreign PEs
On 2 February 2023, Qatar published amendments to Law No. 24 of 2018 (the Income Tax Law) by way of Law No. 11 of 2022 in the Official Gazette. Among other items, if a resident entity in Qatar has a permanent establishment (PE) outside of Qatar, any income attributable to the PE will not be taxed in Qatar. However, this exemption is contingent on the income being subject to taxation in the foreign country where the PE is located.
PE tax rulings
Denmark rules that support activities do not constitute a PE
On 3 February 2023, the Danish Tax Board (DTB) published binding tax ruling SKM2023.58.SR analyzing whether certain support activities will create a PE in Denmark. The ruling is based on a case in which a foreign entity established a branch in Denmark a few years ago to handle administrative tasks related to shipping goods overseas. The branch's daily responsibilities include managing orders, handling supplier invoices, resolving complaints and transport damages, arranging return packaging, planning transportation, and maintaining bookkeeping records.
The foreign entity approached the DTB to determine whether the branch’s activities constituted a PE in Denmark. According to the DTB, the branch’s activities did not constitute a PE as they were of an auxiliary nature. The DTB observed that no sales activities were conducted in Denmark and the branch's responsibilities were primarily supportive in nature, related to logistics and transportation of goods. Therefore, the branch cannot be deemed to be carrying out the foreign entity's core business in Denmark.
The Netherlands issues a tax ruling on PE and remote workers
On 21 February 2023, the Dutch Tax Authority (DTA) issued a tax ruling concerning the non-existence of a PE in relation to remote workers.
This ruling involves a nonresident company active in the service sector who hired three employees in the Netherlands in 2021 and 2022. These employees work in the Netherlands out of personal preference. The nonresident company has no office nor other activities in the Netherlands and does not cover any home-working expenses. The employees further do not have the (formal and/or factual) authority to conclude contracts on behalf of the nonresident company.
The DTA confirms in this particular case that although the three employees carry out work for the nonresident company in the Netherlands, their homes were not at the disposal of the nonresident company and therefore there was no fixed place of business and thus no PE should be recognized. The ruling further stipulates that in the absence of the authority to conclude contracts on behalf of the nonresident company, no dependent agent PE is recognized, which is in line with Dutch tax practice.
The confirmation given by the DTA applies only for this specific party based on the relevant facts and circumstances of this particular case.
Spanish Tax Authority rules that an Irish entity’s warehouses constitute a permanent establishment in Spain
On 23 December 2022, the Spanish General Directorate of Taxes (GDT) issued a tax ruling V2612-22 analyzing whether the activities in Spain of an Irish entity constitute a PE in Spain. The Irish entity carries out its import, storage and distribution of goods in the Spanish territory through a number of premises leased to its Spanish subsidiary. The Spanish subsidiary is also contracted for the logistical activities whereas the Irish principal retains the direction, supervision and risk of the distribution activities.
In the case at hand, the Spanish GDT considered that it is not possible to divide the set of complementary distribution activities forming a joint business operation. On this basis, the GDT concluded that the comprehensive distribution activities carried out in Spain should not be considered as preparatory or auxiliary activities. This is because the Irish entity acts in Spain in a cohesive business using the warehouses, customs and logistical offices and the personnel of the subsidiary itself. Thus, the GDT concluded that a PE exists in Spain for the Irish entity.
The GDT noted that this approach is consistent with the Spanish case law regarding the so-called “Complex Operative Establishment” doctrine (i.e., a doctrine similar to the anti-fragmentation rule of the 2017 OECD Model Tax Convention). In addition, this interpretation is aligned with the recommendations included in BEPS Action 7 Final Report regarding the analysis of a PE economic activity as a whole, even extending such PE to situations in which the place of business belongs to related parties.
For additional information with respect to this Alert, please contact the following:
Ernst & Young Belastingadviseurs LLP, Rotterdam
Ernst & Young Solutions LLP, Singapore
Ernst & Young LLP (United States), Global Tax Desk Network, New York