Remote Worker – “necessity” or “choice” – you be the judge?

Remote Worker – “necessity” or “choice” – you be the judge?

Mon 14 Dec 2020

During the first wave of COVID-19 back in the spring of 2020, many employers found themselves dealing with the issue of “remote workers” in significant volumes, for the first time. When “working from home”, means working from home in another part of the city or the country then the issues are more likely to be focussed on IT effectiveness and maintaining team connectivity. However, if “home” is in another country, then a whole new set of considerations need to be addressed.

Initially, employers may have experienced staff members being ‘trapped’ in certain jurisdictions as a result of both flight cancellations and travel restrictions, and other employees relocating or remaining at home,  so that they could be closer to their family members and friends during a time of global uncertainty where one of the main questions on everyone’s mind was “What’s actually going to happen next?”.

With the use of technology, employees were able to quickly mobilise their workstations to continue providing services from home, whether this was in the same country as their employer or not.  

But, as time has gone on, travel restrictions have eased and the need for employees to stay away from the office and work from home is now becoming more of a choice. And what does this mean for employers in situations where their workforce carries out activities on their behalf in a location where they may not have any corporate presence – can employees work anywhere globally without additional exposure or considerations for themselves and their employers?

Let’s think about the considerations:

When working from a location (home, office, or any other place of business) in a country which is different to where the employee’s legal employer is based, an employer must think through both the corporate and individual considerations in a holistic manner. Some of the common areas of considerations are:

  1. Immigration – does the employee have the right to work in the overseas country?
  2. Permanent establishment (PE) – by virtue of the activities undertaken by the employee in the overseas location – might the employee create a corporate exposure (PE) for the legal employer in that overseas location?
  3. Transfer pricing – if a corporate presence is created, then how does this impact the employer’s cost and revenue allocation between their country of business and the overseas location where the employee is now living and working?
  4. Employee’s residence – could the employee’s personal residence position also change as a result of spending time (however long or short) in the overseas country?
  5. Income tax – would the work activities undertaken in the overseas location trigger an income tax charge in that country?
  6. Social security – what exposure does the employer now create for themselves with an employee working in an overseas location– are the employer and employee social security contributions being paid in the correct location?
  7. Payroll – could there be a payroll withholding requirement for the employer in the overseas location and how practically would you manage this, bearing in mind the ongoing payroll being operated in the country of legal employment?
  8. Employment law – the employer will need to consider whether the overseas country’s employment and labour laws will apply and override the rules applicable in the employer’s home country.
  9. Employment pension and benefits – would employers need to consider mandatory pension requirements in the overseas location and/or provide certain medical and healthcare benefits to employees working overseas to meet their employer obligations in accordance with local labour laws, collective bargaining agreements, and employer duty of care responsibilities in the host location?

Clearly a range of different measures will need to be worked through to really understand the full impact that may be felt with employees working from a location that is different to where their legal employer is based.

Coming back to our remote workers:

How does this impact temporarily displaced employees or those who have had to live and work from an overseas country due to COVID-19?

So coming back to employees who were displaced, or who had to live and work overseas due to COVID 19, we can thankfully say that the OECD quickly responded to the corporate and individual residence and tax situation and issued guidance in April 2020 to indicate that such temporary displacement of employees, caused by COVID 19, should be taken as an exceptional circumstance.

This meant it was unlikely that these displaced employees would create much exposure for the legal employer in the overseas country. The OECD commented as follows:

  • For Permanent establishments (PEs) – “it is unlikely the COVID-19 situation will create any changes to a PE determination. The exceptional and temporary change of the location where employees exercise their employment because of the COVID-19 crisis, such as working from home, should not create new PEs for the employer. Similarly, the temporary conclusion of contracts in the home of employees or agents because of the COVID-19 crisis should not create PEs for the businesses.

The COVID-19 crisis may raise concerns about a potential change in the “place of effective management” of a company as a result of a relocation, or inability to travel, of chief executive officers or other senior executives. The concern is that such a change may have as a consequence a change in company’s residence under relevant domestic laws and affect the country where a company is regarded as a resident for tax treaty purposes.

It is unlikely that the COVID-19 situation will create any changes to an entity’s residence status under a tax treaty. A temporary change in location of the chief executive officers and other senior executives is an extraordinary and temporary situation due to the COVID-19 crisis and such change of location should not trigger a change in residency, especially once the tie breaker rule contained in tax treaties is applied”.

  • For employee residencefor the purpose of a double tax treaty – which governs the allocation of taxing rights over employment income in two countries – an individual can be resident in only one country at a time (their “treaty residence”). The rules are set out in Article 4 of the OECD Model Convention. The starting point is domestic law. If the person is resident in only one country, that is the end of the matter. If they are resident in both countries being tested, the tie-breaker rules in Article 4 of the OECD Model are applied.

“Despite the complexity of the rules, and their application to a wide range of potentially affected individuals, it is unlikely that the COVID-19 situation will affect the treaty residence position.”

  • For Income tax – “Article 15 (Income from employment) of the OECD Model governs the taxation of employment income, distributing the right to tax between the employee’s state of residence and the place where they perform their employment.

The starting point for the rule in Article 15 is that “salaries, wages and other similar remuneration” are taxable only in the person’s state of residence unless the “employment is exercised” in the other state. The Commentary on Article 15 explains that this means the place where the employee is “physically present when performing the activities for which the employment income is paid.” But there are conditions attached to the place of exercise test. That other state (the source state) may exercise a taxing right only if the employee is there for more than 183 days or the employer is a resident of the source state, or the employer has in the source state a permanent establishment that bears the remuneration.

The OECD’s guidance above provided some level of comfort to employers where, if certain conditions were met, no adverse corporate or individual tax implications would be triggered in the overseas country where their displaced workforce were trapped, or relocating to be for a short period of time during the initial COVID 19 wave.

Although not governed by the OECD, immigration and social security considerations would also need to be considered in addition to the above areas. Given the temporary nature of the displacement, immigration authorities across the globe rushed to introduce emergency measures to deal with those who were trapped in the overseas locations. It was also unlikely that the social security liability would have shifted to the overseas country during this time. But care should be taken by employers to ensure their displaced workforce, or those choosing to relocate overseas for a short period of time, were covered in the event of an accident in the overseas location from an employer duty of care perspective.

But when does a temporary arrangement of working overseas, borne of necessity, turn into a more of permanent arrangement of choice?

During the summer, many of these temporarily dislocated employees have returned to their country of work. There are those however who have not. Reasons for this are varied. Some have found they can fulfil their duties remotely just as well as in the office and therefore have decided to become more permanently settled in the overseas location (especially where the employee is a foreign national and they have found themselves back within their home country). 

Others have not felt it safe enough to travel due to the ongoing pandemic. Each case is of course unique, but some key considerations that have yet to be fully addressed by many tax authorities are:

  •  The degree to which any relaxations extended at the beginning of the outbreak will be extended or repeated to account for any subsequent waves (and associated restrictions on movement); and
  • Whether such relaxations will be applicable where employees have chosen rather than been required to work in a certain location, and
  • How to determine when an employee’s location is a matter of choice as opposed to a necessity.

So, we leave you with a few points to consider –

  • When does ‘temporary displacement’ due to the necessity of COVID-19, become a more ‘longer term’ personal choice to work remotely overseas?
  • What does this mean from a corporate and individual perspective – would there be employer and employee tax and social security considerations?
  • How are immigration and employment law considerations impacted for the longer/ more permanent arrangement? (see our article on posted worker directive for EU countries)

Over the next few weeks, Mazars will be visiting several scenarios under the topic of COVID related working, to help companies better understand the key considerations outlined above. Future articles will cover: 

  • The shift from “temporary” to “permanent” remote working and associated employer considerations;
  • Immigration in a remote working world;
  • Use of Personal Service Companies or Contractors in remote working scenarios.

For further information or assistance with any of the issues discussed above, please get in touch with your usual Mazars contact or:

– Head of Global Mobility – Joe Pilley at

– Senior Manager, Global Mobility – Sukhraj Kandola at

– Senior Manager, Global Mobility – Robin Bailey at