Thursday, 22 July 2021

Teleworking and Permanent Establishment in Portugal

VolverAs a preliminary observation, we would like to emphasize that the analysis of the existence of an entity permanent establishment in Portugal could be quite complex.

In this context, in accordance with paragraph c) of number 1 of article 2 of the Portuguese Corporate Income Tax Code ("CIRC") entities not resident in the national territory that carry out their activity herein, through a permanent establishment are considered taxable persons for the purposes of this tax, thus will be taxed in Portugal for the profits obtained herein.

Having that said, number 1, 2 and 3 of article 5 of the CIRC consider as a permanent establishment “(…) any fixed installation through which an activity of a commercial, industrial or agricultural nature is carried out” and clarifies that it is included in this concept, for example, a management location, a branch or an office.

With the COVID-19 pandemic, many workers started to perform their activities from their homes, some even in a jurisdiction different from their employer, which raised several tax issues for the companies, in particular the possible existence of a permanent establishment in the jurisdictions where those employees exercise their functions.

In this regard, the OECD came to clarify, earlier this year, that any changes in the worker's place of work or residence, which occurred due to the pandemic, would not, in principle, represent a significant risk of a permanent establishment for the company, even if the employee entered into contracts on behalf of the company and had powers of authority to represent it.

In relation to telework the OECD clarified specifically that for the worker's residence to be considered a permanent establishment of the company, it will necessarily have to:

1. Comply with a certain degree of permanence.

2. The residence must be effectively available for use by the company, whenever it needs it and so requires.

Notwithstanding, the OECD emphasizes that if these criteria are met, in a pandemic context, such as the current one, they will not be considered, since we are facing a supervening fact, outside the company's will.

The risk analysis of permanent establishment, by itself, sometimes raises complex and difficult-to-delimit issues, requiring a tax analysis prior to the transfer of an employee to Portugal or the beginning of an activity in Portugal, this dilemma has been aggravated with the forced situation of telework, imposed by the pandemic and the movement of company employees to foreign countries.

On the other hand, as a result of the pandemic, we have witnessed a huge rise in the admission of employees for teleworking situations, leading to the lack of need to have a fixed installation in Portugal.

Belzuz Advogados has a team of tax specialists available to advise companies on this risk assessment, depending on the activity carried out here and the specific situation of the workers.

Fiscal and Tax Law department | (Portugal)

 

Belzuz Abogados SLP

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