Place of effective management (POEM) and individuals residence status in COVID19 time

and many different issues due to this unprecedented situation is raising many tax issues, especially where there are cross-border elements in the equation

OECD Secretariat Analysis of Tax Treaties and the Impact of the COVID-19 Crisis

 

All the countries applying the OECD model should consider a kind of #Neutrality for the period a person in a place, not because of its own decision, but because of travel, health and authorities restrictions.

In these cases, the COVID-19 crisis should not create a “permanent establishment” (#PE) for them in those countries, not being #Habitual

We will see how the different jurisdictions will apply the guides in the specific cases, considering that many countries have already defined to follow the OECD proposed path of interpretation

Concerns related to the residence status of a company (place of effective management)

The COVID-19 crisis may raise concerns about a potential changein the “place of effective management” of a companyas 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 lawsand 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 thechief executive officers and other senior executives is an extraordinary and temporary situationdue tothe COVID-19 crisis and such changeof location should not trigger a change in residency, especially once the tie breaker rule contained in tax treaties is applied.

Therefore, all relevant facts and circumstances should be examined to determine the “usual” and “ordinary” place of effective management, and not only those that pertain to an exceptional and temporary period such as the COVID-19 crisis

Concerns related to a change to the residence status of individuals

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

Two main situations could be imagined:

1.A person is temporarily away from their home (perhaps on holiday, perhaps to work for a few weeks) and gets stranded in the host country by reason of the COVID-19 crisis and attains domestic law residence there.

2.A person is working in a country (the “current home country”) and has acquired residence status there, but they temporarily return to their “previous home country” because of the COVID-19 situation. They may either never have lost their status as resident of their previous home country under its domestic legislation, or they may regain residence status on their return.

In the first scenario, it is unlikely that the person would acquire residence status in the country where the person is temporarily because of extraordinary circumstances. There are however rules in domestic legislation deeming a person to be a resident if he or sheispresentin the country for a certain number of days.But even if the person becomes a resident under such rules, if a tax treaty is applicable, the person would not be a resident of that country for purposes of the tax treaty. Such a temporary dislocation should therefore have no tax implications.

In the second scenario, it is again unlikely that the person would regain residence status for being temporarily and exceptionally in the previous home country. But even if the person is or becomes a resident under such rules, if a tax treaty is applicable, the person would not become a resident of that country under the tax treaty due to such temporary dislocation.

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https://read.oecd-ilibrary.org/view/?ref=127_127237-vsdagpp2t3&title=OECD-Secretariat-analysis-of-tax-treaties-and-the-impact-of-the-COVID-19-Crisis

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