Coffee & Consulting: Cross-border commuter - The risk of permanent establishment

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C r o s s - b o r d e r c o m m u t e r - T h e r i s k o f p e r m a n e n t e s t a b l i s h m e n t , S e p t e m b e r 5 , 2 022 

Coffee & Consulting: 

Cross-border commuter – 

The risk of permanent establishment

Permanent Establishment (PE) nationally / internationally 

• Fixed base on national territory 

• Exercise of a business or any other economic activity (acc. to Sect. 29 AT Federal Fiscal Code) 

• Definition overlaps to a large extent with the international definition below 

• E.g. Branches, CEO activity, home-office or construction for the duration of more than 6 months 

• PE definition acc to Art. 5 OECD-MA: 

• Fixed Establishment 

• Existence of an Austrian-based business facility 

• Duration 

• Exercise of a business activity 

• Power of disposal over business facility 

• Agency PE 



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Permanent Establishment (PE) nationally / internationally 

• Differentiation secondment and personnel lease: 

Secondment: 

• Service contract or an order 

• Risk of establishing a PE 

• In whose interest? 

• E.g. secondment of a marketing strategist from the parent company to the subsidiary to implement the marketing 

strategy at the subsidiary. If this is in the interest of the parent company then the parent company remains the 

employer for treaty purposes 

Personnel lease 

• The employee is leased to another company 

• Integration in / bound by instructions of the hosting company 

• Basically no risk of the establishment of a PE 

• Withholding tax (in case of inbound personnel leasing) 

• Relief at source only in case of 

• Intra-group transfer of employees or 

• Existence of an exemption notice (to be applied for at tax authority Bruck/Eisenstadt) 

• In both cases prerequisite: wage tax deductions to ensure the taxation of employees assigned to Austria 



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Examples 

• A consulting company based in Italy offers its services also in Austria. In Austria, always the same office is rented in 14-day 

intervals. In between there is no disposal over the office in Austria. 

• SOLUTION: 

Fixed establishment 

Over a long period of time (also recurring with interruptions) 

Business activity 

Power of disposal 

• An AT company seconds an employee for the duration of 12 months to the Chinese group company so that he or she can train 

employees in the operation of a machine. The costs for the training are charged based on the personnel costs plus 10% mark-up. 

• SOLUTION: 

• In whose interest? 

• Parent for control and coordination PE risk 

• Personnel lease basically no PE risk 

• Service PE (in certain DTA) 



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Home-Office PEs – Qualification conflicts with GER and CH 

AT 

• Treats Home-Office as a PE for treaty purposes if the following conditions are met: 

• Factual power of disposal independent of access authorization 

• Not only temporary, more than (25% of the total activity) 

• Serving for the exercise of the business 

GER 

• Home-Office does usually not constitute a PE 

• No legal power of disposal over private apartments 

• GER employer is granting Home-Office to an Austria-based employee risk of double-taxation 

• AT employer is granting Home-Office to an German-based employee possibly double-non-taxation 

CH (to be discussed in more detail with the experts from Convinus) 

• Home-office PEs are known in Swiss tax law 

• 12-months duration 

• Ordering of Home-Office / costs for Home-Office are borne by employer 

• PE risk higher the more the employer has influence on the Home-Office 

• No highest court decisions up to now 

Avoidance qualification conflicts by interpreting method article or mutual agreement procedure 



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Examples 

IT-employee working for group-company in AT Home-Office 

auxiliary activity acc. to Art 5 para. 4 OECD-MA 

activity is rendered for the whole group 

PE establishment in Austria tax obligations of the foreign employer 

IT-employee working for a German company in the AT Home- 

Office 

- auxiliary activity acc. to Art 5 para. 4 OECD-MA 

- No PE in Austria tax obligations in the employer state Germany 

IT manager works in AT home office 

generally not an auxiliary activity within the meaning of Art. 5 para. 4 OECD- 

MA 

Permanent establishment in Austria at the home office location is triggered 

Declaration and tax obligations of the foreign employer in Austria 



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PE avoidance 

• Preparatory and auxiliary activities (acc. to Art. 5 para. 4 OECD-MA) do not trigger any PE 

• List of exceptions (may not represent the core activity of the company) 

• Storage, display and delivery of goods, not orders, repairs and sales closure 

• Stocks of goods exclusively for storage, display and delivery 

• Stocks for processing and treatment 

• Purchasing and information procurement exclusively for the company e.g. correspondence 

office, market research 

• Other auxiliary activities, e.g. advertising, information, research, representative and liaison 

offices, 

• Combination of different auxiliary activities 

Exception: according to the legal opinion of the Austrian Ministry of Finance 

PE establishment cannot be avoided when auxiliary or preparatory activities 

for the whole group are performed 



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Conclusion 

• Caution with cross-border activities of employees 

• Establishment of a PE when using a fixed facility for business or professional purposes, power of 

attorney to conclude contracts for the principal 

• Avoidance PE in connection with auxiliary or preparatory activities (not if for the whole group) 

• Profit deferral (according to transfer pricing principles) 

• Additional compliance costs 

• PE establishment not always disadvantageous (possible lower tax burden abroad) 



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Sample – Cross border employee 

SITUATION 

• Anton Austria (Austrian national) lives in Austria and is employed at Drinks AG in St. Gallen (Switzerland) as the CFO. 

• He would like to still continue to work 3 days in the office and 2 days from home. 

What are the legal implications? 

Switzerland 

• Labour law: Switzerland / Austria 

• Immigration: Cross-border permit 

• Social security: none in Switzerland, but A1 will 

be required 

• Tax: Swiss days will taxed in Switzerland 

(withholding tax) 

• Payroll: Switzerland with Shadow-Payroll in 

Austria 

Austria 


• Social security: Austria, A1 form to be applied at 

AT health insurance fund 

• Tax: 100% of Swiss income taxable in AT, taxes 

paid in CH to be credited 

• Payroll: If a PE is created obligation to 

withheld wage tax, no PE shadow payroll 

recommended in order to calculate AT 

soc.sec.contributions 



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Sample – Cross border employee 

SITUATION 

• Reto Swiss (Swiss national) lives in Switzerland and is employed at Drinks AG in Vienna (Austria) as the CFO. 

• He would like to still continue to work 3 days in the office and 2 days from home. 

What are the legal implications? 

Switzerland 


• Social security: in Switzerland enrolled, A1 to be 

requested 

• Tax: tax return procedure with effectively taxing the 2 

days; the income taxed in Austria will be considered 

with exemption by progression 

• Payroll: Shadow-Payroll for Swiss social security 

Austria 


• Immigration: Application registration certificate 

(“Anmeldebescheinigung”) within 4 months of 

the entry in case of a domicile in AT, free access 

to work 

• Social security: Switzerland, A1 in AT 

• Tax: Income attributable to working days in AT 

taxable in AT, income attributable to working 

days in CH tax-exempt in AT 

• Payroll: In AT, income attributable to CH can be 

considered tax exempt 



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Your Questions? 

Michael Obernberger, MBA 

Partner 

ARTUS Steuerberatung 

GmbH & Co KG 

M.Obernberger@artus.at 

+43 676 897089 200 

Friederike V. Ruch 

CEO 

CONVINUS global mobility solutions 

friederike.ruch@convinus.com 

+41 44 250 20 20 



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Disclaimer 

The content of this presentation is for general guidance only 

and should by no means be used as a substitute for an 

individual consultation with professional accounting, tax, legal 

or other competent advisers. While we have made every 

attempt to ensure that the information delivered with this 

presentation has been obtained from reliable sources, 

CONVINUS is not responsible for any errors or omissions, or for 

the results obtained from the use of this information. The 

entire content of this webinar is the intellectual property of 

CONVINUS and is under copyright. Any modification, 

duplication, distribution and public disclosure of the content 

or parts there of requires the written consent of CONVINUS. 


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Coffee & Consulting: Cross-border commuter - The risk of permanent establishment

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