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In brief

On 21 January 2021, the Organisation for Economic Co-Operation and Development (OECD) published updated guidance on tax treaties and the impact of the COVID-19 pandemic, originally issued by the Secretariat in April 2020.

The OECD’s guidance reflects the Secretariat’s views on the interpretations of the tax treaties and the general approach being taken by member jurisdictions, and illustrates how certain jurisdictions have addressed the impact of the pandemic on the tax situations of individuals and employers. The OECD states that the updated guidance is intended to provide greater certainty to taxpayers during the COVID-19 pandemic.


The updated OECD guidance highlights jurisdictions’ responses to concerns arising from the COVID-19 pandemic related to the creation of permanent establishments, change of residence and taxation of employment income. We have set out below a summary of the key points.

The OECD emphasizes that the guidance is relevant only to circumstances arising during the COVID-19 pandemic when public health measures are in effect, and does not purport to replace the judgement of tax administrations where factual determinations are required. It seeks to avoid instances of double taxation but cannot be relied on to create instances of double non-taxation.

Creation of Permanent Establishments (PEs)

  • Employees working in jurisdictions other than the one in which they usually work might, ordinarily, create PEs of their employing companies in those jurisdictions which would trigger new filing requirements and tax obligations.
  • The OECD guidance confirms the position generally being taken by jurisdictions that a temporary change of an employee’s location, and any temporary conclusion of contracts from an employee’s home, should not create new PEs for the employer.
  • For example, in the United Kingdom (UK), HM Revenue & Customs has issued guidance which notes that their existing guidance is flexible and a degree of permanence is required for there to be a “fixed place of business” in the UK for PE purposes.
  • The guidance specifically addresses home working, expressing the view that individuals teleworking from home as result of COVID-19 restrictions should not create a fixed place of business PE for the business/employer.
  • However, the guidance also confirms that employers should note that domestic law thresholds, which require businesses to register for tax purposes, may be lower than those under an applicable tax treaty and not all taxes may be covered by applicable treaties.

Change of Residence


  • Where board members and senior executives have been unable to travel or relocate as a result of COVID-19 restrictions, this has raised concerns that there could be a change to the “place of effective management” of companies and, consequently, a change in a company’s residence for domestic and tax treaty purposes.
  • The OECD guidance confirms that it is unlikely that the pandemic will change a company’s residence status under a tax treaty, given that a temporary change in location of board members and senior executives is an extraordinary and temporary circumstance for these purposes.
  • For example, New Zealand’s Inland Revenue has issued guidance which confirms that corporate taxpayers will not be tax resident in New Zealand because directors of a company are confined or stranded in New Zealand.


  • The OECD guidance also confirms that an individual’s treaty residence status is unlikely to be affected by the COVID-19 restrictions (despite the complexity of these rules), and highlights guidance from individual jurisdictions confirming the impact of COVID-19 on domestic and tax treaty determinations concerning individuals’ residence status.

For example, the Australian Tax Office has published guidance which confirms that, where an individual who is not an Australian resident for tax purposes remains in Australia for either weeks or months due to COVID-19, they will not become an Australian resident for tax purposes provided that: (a) they usually live permanently overseas, and (b) they intend to return there as soon as they are able to do so.

Income from Employment

  • The OECD Model distributes the right to tax between the employee’s jurisdiction of residence and the place where they perform their employment (Work Jurisdiction). Broadly, the Work Jurisdiction may only exercise a taxing right if the employee is there for more than 183 days, the employer is a resident in the Work Jurisdiction or the employer has a PE that bears the remuneration in the Work Jurisdiction.
  • Where an employee, who is resident in one jurisdiction and formerly performed their employment in a Work Jurisdiction, receives a COVID-19 government subsidy from the Work Jurisdiction, the OECD guidance confirms that this payment would be attributable to the Work Jurisdiction under the OECD Model.
  • Additionally, where an employee is prevented from travelling due to COVID-19 public health measures issued by a government, the OECD guidance confirms that it would be reasonable for jurisdictions to disregard the additional days spent in that jurisdiction for the purposes of the 183 day test. However, jurisdictions have adopted different approaches and/or have issued specific guidance outlining their approach; therefore, taxpayers are encouraged to contact their local tax authority.
  • Finally, changes to the jurisdiction in which an employee performs their employment may have an impact on where their employment income is taxed; new taxing rights over the employee’s income may arise in other jurisdictions and those new taxing rights may displace existing taxing rights. As payroll taxes are often withheld at source, there will be compliance and administrative costs for the employer and employee in these circumstances. Some jurisdictions have issued guidance and administrative relief to mitigate this additional burden.

To read the OECD’s guidance in full, please click here. For further information about how we can help you to assess the implications of your employees working overseas as a result of the pandemic, please contact a member of your Baker McKenzie team.


Jeremy Edwards is a partner at Baker & McKenzie´s London office.


Kathy Granby is a Senior Associate in Baker McKenzie London office.


Emma Louise Garthwaite is an Associate in Baker McKenzie's London office.