Tax consequences of working from home for the managing director

Ac­cor­ding to Ger­man tax law, a cor­po­ra­tion is sub­ject to un­li­mited cor­po­ra­tion tax in Ger­many if it has its re­gis­te­red of­fice or its place of ma­nage­ment here. If the sole ma­na­ging di­rec­tor of a for­eign cor­po­ra­tion is forced to work from his or her place of re­si­dence in Ger­many due to the Corona pan­de­mic, this could es­ta­blish un­li­mited tax lia­bi­lity in Ger­many. The cor­po­ra­tion would then be faced with dou­ble ta­xa­tion in Ger­many and in the coun­try where the com­pany is es­ta­blis­hed. In Ger­many, the tax re­gis­tra­tion of a per­ma­nent es­ta­blish­ment and the sub­mis­sion of a tax re­turn with at­tri­bu­tion of pro­fits to this per­ma­nent es­ta­blish­ment would be re­qui­red. A dou­ble tax treaty agreed bet­ween the coun­try where the com­pany is es­ta­blis­hed and Ger­many does not pre­vent this, but only en­su­res that the same tax sub­strate is not ta­xed mul­ti­ple ti­mes. In ad­di­tion, de­ba­tes about the ex­tent of the pro­fit to be al­lo­ca­ted to the per­ma­nent es­ta­blish­ment may arise.

At an in­ter­na­tio­nal le­vel, howe­ver, first voices are al­re­ady being heard ad­vo­ca­ting that a pro­fes­sio­nal ac­tivity at the com­pany’s head­quar­ters which is li­mited or tem­pora­rily im­pos­si­ble due to the Corona pan­de­mic should not be de­tri­men­tal to tax re­si­dency and thus tax lia­bi­lity.

For ex­am­ple, the OECD has al­re­ady ex­pres­sed the view that the tem­porary pro­fes­sio­nal ac­tivity from the place of re­si­dence should be ir­re­le­vant to the ques­tion of the exis­tence of a ta­xable per­ma­nent es­ta­blish­ment. Ire­land, Great Bri­tain and Aus­tra­lia also do not want to draw any tax con­se­quen­ces from the fact that ma­na­gers of mul­ti­na­tio­nal com­pa­nies are tem­pora­rily unable to work at the com­pany's head­quar­ters.

Note

In Ger­many, there cur­rently only exist ef­forts to avoid tax con­se­quen­ces for cross-bor­der em­ployees who tem­pora­rily work from home in­stead of their usual place of work (see the ar­ti­cle on cross-bor­der workers). We howe­ver ex­pect that this also ap­plies to ma­na­ging di­rec­tors tem­pora­rily working from home. Ne­vert­he­less, it should be en­su­red that the pro­fes­sio­nal ac­tivi­ties of a ma­na­ging di­rec­tor working from home do not be­come ent­ren­ched, as other­wise - even wi­thout pan­de­mic ef­fects - the path to a per­ma­nent es­ta­blish­ment in Ger­many is a short one.