OECD Commentary on Interpretation of Tax Treaties – COVID–19
The OECD has published its views on the impact of COVID-19 when considering residence status for both individuals and corporate entities. It would appear to offer some considerable relief at this difficult time although, of course, individual jurisdictions are not necessarily bound by the OECD commentary:
1.1 OECD guidance on tax treaty issues and COVID-19
The OECD has published its analysis of cross-border issues that may arise due to the COVID-19 crisis. The report sets out the OECD’s view of how tax treaties should be interpreted to resolve these issues.
Many governments have imposed quarantine measures or prohibited travel in response to the spread of COVID-19. These restrictions on movement have, in some cases, resulted in individuals carrying out work in a different jurisdiction from their usual place of work.
In the OECD’s view, an employee dislocated to a different jurisdiction from his usual place of employment is unlikely to create a permanent establishment. It notes, however, that there may still be a requirement to register for CT under domestic law in the jurisdiction of the quarantined employee. The OECD also believes that a company’s residence or place of effective management is unlikely to change as a result of senior staff being quarantined in countries other than the jurisdiction of company residence. Attending meetings virtually is a temporary issue and will not usually trigger a different outcome in the tie-breaker residence test in tax treaties.
There may also be uncertainty regarding the taxation of an employee’s salary if he is quarantined in a different jurisdiction from his usual place of work. If a Government subsidises his wage by making a payment to his employer, the OECD believes that the income should be taxable in the jurisdiction where he would work if not for the current restrictions.
The OECD has also taken the view that the current travel restrictions are unlikely to change an individual’s treaty tax residence.