COVID-19: MoF information on specific PE treaty timelines


COVID-19: MoF information on specific PE treaty timelines

Due to the COVID-19 prevention measures, many employees have been forced to home office work for several months and frontier workers have been unable to shuttle daily between their usual workplace and their home. Furthermore, many construction sites were put on hold. All these incidents may have severe consequences for a potential creation of permanent establishments (PEs). The Austrian Ministry of Finance (MoF) provided information on this issue on 22 May 2020 generally supporting the view of the OECD Secretariat (Paper of 3 April 2020).

Home office PEs

With respect to home office the following rules shall apply:

  • If employees work from home during the COVID-19 pandemic due to government recommendations in the relevant country, the Austrian Ministry of Finance does not deem this to be sufficient to create a PE  within the meaning of Art. 5 OECD Model Tax Convention because the location lacks permanency and is not at the disposal of the employer.
  • However, different rules apply if home office activities become the new norm after COVID-19, or if activities were partially completed from home also before the restrictions entered into force. In cases such as these, a detailed analysis of PE risks is recommended.

We recommend that guidance on home office policy of the relevant national authorities shall be documented, particularly the end date of any temporary Covid-19 measures. Especially it is unclear how the relevant periods should be calculated and how the Austrian MoF will assess the end date of COVID-19 measures in other countries (e.g. borders have been re-opened, but measures on physical distancing in offices remain in place, and thus part of the workforce continues working from home).

Tax treatment of frontier workers

Certain Austrian tax treaties contain special clauses on the tax treatment of the (employment) income of employees in border areas commuting daily to their workplace in the neighboring state (so-called frontier workers), which allocate taxation rights to the state of residence in certain circumstances. Frontier working rules of this kind, together with bilateral consultation agreements in response to the COVID-19 pandemic, take precedence over the general allocation rule (taxation at the place where activities are carried out):

  • In accordance with the consultation agreements with Germany, working days spent in a home office solely due to the COVID-19 measures will be treated as days spent working in the contracting state in which the activities would have been carried out if the measures had not applied. Under the consultation agreement, these working days will continue not to count towards the total of “non-return" days. In general, status as a frontier worker can be lost retrospectively if 45 non-return working days are exceeded.
  • With respect to the frontier working rule in the DTT with Liechtenstein, the MoF has clarified that working from home due to the COVID-19 measures will not lead to a loss of status as a frontier worker.
  • Consultations on COVID-19 measures are still ongoing regarding the frontier working rule in the DTT with Italy.

Construction site PEs

  • Unless bilateral agreements stating otherwise, the Austrian MoF does not generally envisage any changes to the applicable periods for construction site PEs (usually twelve months) if construction has been interrupted due to COVID-19.
  • The MoF has made clear that this also applies if a construction project was commissioned in several separate phases and the relevant periods are subject to bilateral DTT provisions (e.g. as is the case for Germany, Switzerland, or the Czech Republic). In these cases, the periods in which construction did not take place between the work phases do not have to be included in the calculation period for construction site PEs. In our view, this leads to the following conclusions:
    • If work during a construction phase was interrupted due to COVID-19, the downtime must be included when calculating the periods for construction site PEs.
    • However, if the COVID-19 restrictions merely extended a period without construction work between separate construction phases, this time does not need to be included when calculating the periods for construction site PEs.
  • In the case of Germany, bilateral consultations are currently being held regarding a possible interruption of the period for construction site PEs.

Unlike the OECD analysis, the MoF information of 22 May 2020 does not contain any statements on agency PEs and the COVID-19 restrictions. In our view, it is advisable to carry out a detailed analysis.


It is to be welcomed that the MoF has now clarified various issues related to COVID-19 and generally shares the view of the OECD Secretariat. Furthermore, the MoF intends to update the information of 22 May 2020 on a regular basis to include any new developments. For example, consultations are currently ongoing with various neighboring states, which may eventually lead to additional relief measures, which will need to be reviewed on a case-by-case basis.

It remains to be seen whether the next update will contain specific information on how to calculate the relevant periods, as well as on the date at which the MoF will deem the COVID-19 measures to have ended. We therefore recommend monitoring the current location of employees and where they carry out activities for the company, especially during travel restrictions due to COVID-19, in order to review possible arrangements in a timely manner and fulfil all registration and compliance obligations on time.

Author: Katharina Königseder / Nikola Breinhölder

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