According to the 2017 Model Tax Convention on Income and on Capital of the Organisation for Economic Co-operation and Development (OECD MTC) commentary, a general PE will only be found to exist if the following is the case:
- The existence of a place of business, i.e. a facility such as premises at the disposal of the enterprise;
- The place of business must be fixed, i.e. it must be established at a distinct place with a certain degree of permanence; and
- The business must be conducted through that fixed place of business.
In order for a home office to be a place of business at the disposal of an enterprise, it must be used on a continuous basis for business. According to the OECD MTC commentary, the temporary carrying on of a trade at home by an employee does not result in that home being at the disposal of the employer.
The OECD MTC commentary also explains that where an individual performs most of their work at home in one state, e.g. South Africa, rather than from an office made available to them in the other state (where they normally work), that home office is not at the disposal of the enterprise as the enterprise did not require the home to be used for business activities.
Stranded employees working from home due to COVID-19 measures do so under exceptional and temporary circumstances. According to the OEDC, many individuals who stay home to work remotely are typically doing so as a result of government directives and not as a result of an enterprise’s requirements.1 Therefore, home offices that stranded employees are using should not constitute places of business at the disposal of their employers.
Furthermore, as a rule of thumb, a PE is generally not considered to exist in situations where a business is carried on in a country through a place of business that is maintained for less than six months. It follows that a PE will generally only exist if the place of business has a certain “degree of permanence”.2
Based on the above, we do not expect that home offices which stranded employees use will constitute a fixed place of business, as the home office is merely temporary and transitory due to COVID-19 measures. As such, we do not expect that the home offices should create a general PE where it constitutes a deviation from the normal mode of working.