Tax reform for remote working abroad

Remote working, galvanised by the COVID-19 pandemic, has become considerably more important in the daily operations of businesses globally, with options for remote working providing greater flexibility for employees, enhanced performance for business and positive environmental impacts.

Nonetheless, these adjustments pose challenges to taxation, and social security practices and policies, due to applicable domestic and bilateral rules. In cases where employees live abroad or stay abroad for an extended period of time, there is a risk of the unintended creation of permanent establishments (“PE”), place of effective management (“POEM”) or additional registration (including labour laws or social security) and declaration obligations in certain cases, which can result in considerable administrative burden and implications on liquidity for many businesses.

In response, the Organization for Economic Co-operation and Development (OECD) issued recommendations to member countries to reduce any unintended or negative impact of remote working due to the COVID-19 pandemic, with respect to taxation and social security practices and policies.

In this discussion paper ICC, as the institutional representative of 45 million businesses in over 100 countries around the world, explores the key tax considerations for longer term remote working abroad and provides some recommendations for approaches to address the challenges that may arise in this context.

As employers consider conditions for sustained remote working for employees in a post-pandemic world, it is essential for them to achieve legal certainty and clarity regarding remote working in view of current divergent tax laws across different jurisdictions. Therefore, explicit legal provisions referring to the IRW (“International Remote Work”) regime would be very useful in this respect. Moreover, clear guidance from policymakers and governments will be instrumental for businesses as they assess these issues and seek to establish new frameworks to adopt specific policies to ensure seamless business continuity, reduce administrative burden and safeguard employees’ rights in the process.