Tax Implications of Telework: Netherlands and Belgium Reach an Understanding

The burgeoning trend of cross-border telework has significant tax ramifications. A recent accord between the Netherlands and Belgium carries direct implications for employers and employees engaged in cross-border telework.

In the accord, the Netherlands and Belgium have concurred on the interpretation of the term “permanent establishment” as outlined in the tax treaty between the two nations. This agreement is geared toward providing employers with greater clarity regarding whether and under what conditions telework can be deemed a permanent establishment.

If a home office is deemed a permanent establishment, the employer may incur tax liability in the country where the establishment is situated.

There may also be tax consequences for employees, such as liability for income earned through the permanent establishment. Hence, it is vital for employers and employees to be cognizant of the potential tax consequences associated with cross-border telework.

Defining Permanent Establishment

As per the tax treaty between the Netherlands and Belgium, a permanent establishment is defined as a fixed place of business through which an enterprise conducts all or part of its business activities. This definition closely aligns with that of the Organization for Economic Cooperation and Development Model Tax Convention and serves as the foundation for assessing whether a home office can be classified as a permanent establishment. The agreement distinguishes between various telework scenarios.

Scenario 1. Intermittent telework. In instances of intermittent telework, where employees work from home sporadically or only occasionally, and telework is not a routine part of their work schedule, the home office is not deemed at the disposal of the employer. Consequently, there is no permanent establishment in this scenario.

Scenario 2. Structured telework with onsite options. In cases of structured telework, where employees regularly work from home but also have the option to work onsite, the home office typically does not fall under the employer’s control. However, this changes if the employer explicitly mandates that the employee work from home, making the home office an actual hub for the enterprise’s activities. In such circumstances, the home office may be considered a permanent establishment.

Scenario 3. Structured and mandatory telework. When employees are compelled to telework as part of their regular duties, and the home office is under the employer’s control, the establishment of a permanent presence becomes more likely. This situation may arise, for example, when telework is contractually stipulated or when the employer lacks workspace at its premises in the country where the enterprise is based. The assessment of whether a home office constitutes a permanent establishment hinges on the specific factual circumstances and must be conducted on an individual basis.

Practical Guidelines

In addition to addressing the aforementioned scenarios, the agreement also offers practical guidance. For example, it states that if an employee works from their home office for 50 percent or less of their total working hours in a year, it will not be considered a permanent establishment. Furthermore, it clarifies that if the activities performed at the home office are of a supporting or ancillary nature, they will not lead to the establishment of a permanent presence.

Conclusion

The understanding reached between the Netherlands and Belgium concerning teleworking employees and the establishment of permanent establishments offers employers and employees greater clarity on the tax implications of cross-border telework. By distinguishing between different telework scenarios and providing practical guidelines, employers can take appropriate tax measures and educate employees about their tax responsibilities.

Nevertheless, it is imperative to recognize that the assessment of whether a home office qualifies as a permanent establishment hinges on the specific factual circumstances and necessitates individualized determination. Therefore, seeking professional advice is advisable in cases of uncertainty.

Dooitze Dijkstra is a partner and Loïc Weissglas is a consultant with Grant Thornton in Amsterdam. © 2024 Grant Thornton. All rights reserved. Reposted with permission of Lexology.