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July 12, 2021

PE Watch | Latest developments and trends, July 2021

PE developments in response to COVID-19

Germany – Austria

On 18 June 2021, the German Ministry of Finance published a new mutual agreement with Austria on their 2000 tax treaty. The mutual agreement addresses frontier workers and replaces the mutual agreement signed in January 2021. The latest mutual agreement includes a section on the application and interpretation of Article 5(1) of the treaty (fixed place of business) with respect to home office permanent establishments (PEs). Accordingly, employees carrying out their activity in their home office solely as a result of the pandemic will generally not constitute a home office PE for their employers.

The mutual agreement entered into force on 18 June 2021 and is valid from 11 March 2020 to 30 September 2021. It automatically extends every month until one of the competent authorities notifies the termination of the mutual agreement one week before the start of the following month.

Germany – Switzerland

On 23 June 2021, the German Ministry of Finance published an update to the mutual agreement with Switzerland that mainly revolves around frontier workers. This mutual agreement was concluded in June 2020 as a response to the COVID-19 pandemic. The latest update of the mutual agreement extends its application to 30 September 2021 (previously it was to 30 June 2021). Other than the extension of the period of application, the content of the mutual agreement remains the same.


On 25 June 2021, Greece released Circular E.2130 to update its approach on some of the international tax issues arising as a consequence of the COVID-19 pandemic. Among other items, the Circular recognizes that the COVID-19 pandemic has introduced new forms of working (e.g., working from home) that may raise concerns about having a PE in Greece. Accordingly, individuals working from home in Greece would not generally create a PE for their nonresident employers provided the temporary nature of their staying in Greece and any work restrictions are due to the COVID-19 pandemic.

With respect to the activities performed by an employee at home, it should be taken into account whether the performance of the relevant activities is permanent and continuous in nature, as well as whether the employee’s home is at the disposal of the nonresident employer. This will depend on the facts and circumstances of each individual case, e.g., if there is an office in the jurisdiction where the employee resides or whether the nonresident’s business operations have changed in a way that the employee is required to use his home to continue the activities of the nonresident employer. For the latter case, the home office may be considered at the disposal of the nonresident employer. In general, the individual’s presence and performance of employment activities in Greece has to be connected to the circumstances shaped by the COVID-19 pandemic and also be exceptional in nature.

This Circular provides that the period from 9 November 2020 to 14 May 2021 shall not be taken into consideration in PE assessments, due to the increased application of restrictive COVID-19 related preventive measures. The previous Circular E.2113 was applicable from 18 March 2020 to 15 June 2020. As for cases between 15 June 2020 and 9 November 2020, the updated Circular considers that each case needs to be assessed on its own merits. Specifically, affected parties must be in a position to prove the non-existence of a PE with all means available (e.g., records).

New Zealand

Recently, the Inland Revenue Department (IRD) of New Zealand updated its guidance on COVID-19 and PEs. Consistent with the previous guidance, the guidance stipulates that the COVID-19 pandemic will generally not cause nonresidents to have a PE in New Zealand. However, the guidance clarifies that a PE assessment should be based on the facts and circumstances of each case. For this, the guidance considers relevant that the nonresident did not have a PE in New Zealand prior to the COVID-19 pandemic and the presence of employees in New Zealand is short-term because of current travel restrictions.

The guidance now includes a new section on remote cross-border workers and PEs. In this section, reference is made to employees that have extended their stay in New Zealand due to the risk of lock downs and related uncertainties. The IRD considers that minor extensions to work remotely would not generally trigger a PE. In most cases, the risk of minor extensions resulting in a PE is limited. However, for longer stays, the risk of a PE arising is more likely. The IRD will review its approach on remote cross-border workers and PEs from 31 December 2021.


On 9 June 2021, the Inland Revenue Authority of Singapore (IRAS) again updated its guidance on COVID-19 and PEs. The updated guidance extends its period of application up to 31 December 2021 (previously it was to 30 June 2021). Other than the extension of the period of application, the IRAS approach on PEs remains the same.

Domestic Law PE developments


On 23 June 2021, the Russian Federation Council (upper house) approved Bill No. 1176731-7 introducing new requirements for foreign entities with an online presence in Russia. The Bill requires that foreign websites, information systems and programs aimed at Russian customers open a local office or branch in Russia. This requirement is applicable to foreign entities or individuals with more than 500,000 daily users in Russia and also meet the following conditions: (i) website/program/system uses the Russian language; (ii) the foreign entities/individual receive money from Russian customers; and (iii) the information contains advertisement aimed at Russian customers.

Failure to comply with the Bill may have consequences, including restrictions on accepting payments from Russian customers, bans on search engines and the blocking of service in Russia.

The Bill is effective from 1 January 2022.


On 12 June 2021, the Tanzanian Parliament published in the Official Gazette the Financial Bill 2021 introducing certain amendments to the Income Tax Act. Among other items, the Financial Bill updates the PE definition to include that an agent shall be deemed to have a PE in any of the following cases:

  • The agent other than an independent agent has and habitually exercises authority to conclude contracts or issues invoices on behalf of a nonresident, unless his activities are limited to the purchase of goods or merchandise for the nonresident.
  • The agent other than an independent agent has no authority to conclude contracts, but habitually maintains stock of goods or merchandise from which he regularly delivers goods or merchandise on behalf of the nonresident.
  • The agent other than an independent agent habitually secures orders, wholly or almost wholly for the nonresident or for the enterprise and other enterprises controlling, controlled by, or subject to the same common control, as that of the nonresident.

The Finance Bill is effective as of 1 July 2021.

Other PE developments


On 7 June 2021, the Chilean Internal Revenue Service (IRS) issued ruling 1465 in relation to the tax treatment of a split-up of a foreign entity with a PE in Chile. In this ruling, a foreign entity with a PE in Chile split-up and as a result of the division, another entity was incorporated abroad. Some of the assets attributed to the PE in Chile were transferred to the newly incorporated entity. Consequently, the newly incorporated entity created a PE in Chile. According to the ruling, the split up of the foreign entity and assignment of assets and liabilities to the new PE in Chile should have similar tax consequences as a division of a local company under local tax free reorganization rules. This means that: (i) there would not be a taxable event in Chile as long as the assets and liabilities from the PE in Chile are transferred to the PE of the new incorporated entity at the same tax value that the PE in Chile had before the transfer; and (ii) accumulated taxable profits should be transferred and allocated to the new PE based on the equity assigned.

Also, on 29 June, the IRS issued ruling 1643 in response to the merger of two foreign entities with PEs in Chile, respectively. According to the ruling, the foreign merger would have a different tax treatment in Chile depending on its structure. If assets and liabilities of the PE of the foreign merged entity are transferred to the foreign surviving parent entity, the foreign merger shall be treated as a liquidation of the local PE of the foreign merged entity. In this case, the transaction would be applicable to a 35% cease of activities tax upon any accumulated profits and  a full liquidation report to the IRS would be required. Alternatively, if the PE’s assets are transferred to the other PE in Chile, the foreign merger should be treated as having similar tax consequences as a local merger of the PEs, i.e., the 35% cease of activities tax should not be applicable. Also, a simplified liquidation report to the IRS would be required and all profits generated by the PE in Chile of the foreign merged entity would be transferred to the PE of the foreign surviving parent entity.


For additional information with respect to this Alert, please contact the following:

Ernst & Young Belastingadviseurs LLP, Rotterdam

Ernst & Young Belastingadviseurs LLP, Amsterdam

Ernst & Young Solutions LLP, Singapore

Ernst & Young LLP (United States), Global Tax Desk Network, New York