When are employees a permanent establishment?

The Dutch Ruling Commission has decided that three employees who work from home do not constitute a permanent establishment of their foreign employer (ATR 000011, 21 February 2023), an opportunity to look at the Belgian and international rules on working from home.


The case relates to a company that is the headquarters of an international group in the service sector. It is incorporated in and subject to corporate tax in a country outside the European Union that has signed a double tax treaty with the Netherlands. In 2021 and 2022, it hired three employees who are resident in the Netherlands and who - out of a personal preference - work from their homes. The company has no other employees in the Netherlands and it does not carry out any other activities there.

It is to be noted that the employees do not have the authority to conclude contracts, not even de facto. The employer does not reimburse the cost of this home office.

Under Article 5 of the double tax treaty, a company has a permanent establishment if it has a fixed place of business in which the business of the company is wholly or partly carried on. However, there will be no permanent establishment if these activities are of a preparatory or auxiliary character. Furthermore, under the tax treaty, a permanent establishment may exist if the company has a permanent representative, a person who is authorised to act for the account and risk of the company in the Netherlands and that authorisation is habitually used.


The Ruling Commission notes that the employees carry out activities on behalf of the company from their home in the Netherlands. However, the company has no other activities in the Netherlands. The Ruling Commission has decided that the company's activities in the Netherlands do not result in a permanent establishment because the residences of the employees are not at the disposal of their employer.

It is also to be noted that the employees are not authorised to conclude contracts on behalf of the company and that they do not habitually exercise that right. As a result, they are also no permanent representative of the company in the Netherlands. The view of the Dutch Ruling Commission is thus consistent with the view of the Dutch Supreme Court, which ruled in 1957 that for wage tax purposes, a room which a permanent representative has furnished in his private residence for the purpose of performing work and which is not at the disposal of the employer is not an office or other permanent establishment of that employer (HR 13 maart 1957, BNB 1957/144).


This decision is consistent with the OECD Commentary on Article 5 OECD. Since 2017, the OECD Commentary explicitly addresses the home-workplace as a permanent establishment. A home office does not automatically constitute a permanent establishment. However, this always requires an analysis of the facts of the situation.

A home workplace cannot be at the employer's disposal if it is only only used occasionally and intermittently. But, if the use of a home office is continuous and if the facts and circumstances show that the same place is effectively used, then the home office can be said to be at the disposal of the employer. It is to be noted that the OECD commentary does not explicitly refer to the situation where the employer contributes to the cost of the home office. This criterion may be relevant to assess whether the home office is at the disposal of the employer.

at the disposal of

A home-workspaces must be "at the disposal" of the enterprise before it can be seen to be a permanent establishment. In other words, there must be some space at the employer's disposal but when is that the case?

It has been argued that the employer must have a legal right to use the business establishment as th eowner or the tenant. A mere use of the permanent establishment would not suffice. In this respect, the German Bundesverfassungshof has stated that there can only be a permanent establishment if the foreign company has a legally guaranteed right of use (BFH, 18 March 1976, BstBl 1976, II, 365).

The OECD and many authors are, however, of the opinion that it is not necessary for the foreign company to be the owner or tenant of the business establishment in question.


This is also the position of the Belgian tax administration (Com.Conv. 5/103). In this respect, the Supreme Court has decided that a space in the business premises of a client can suffice to qualify as a business establishment. (Cass.,30 November 1978).

The Belgian Ruling Committee has confirmed the position of the OECD that home-based employees of a foreign company are not a permanent establishment. This is also because the employer does not have a power of disposal over these homes.

On several occasions the Belgian Ruling Commission has ruled that home-based employees of a foreign company cannot give rise to a permanent establishment. In an older ruling (nr 2011.432), it decided that a home office cannot constitute either a tangible or a personal permanent establishment. An important element was that the employer has no power of disposal over the staff member's private working space. Furthermore, this is confiremd by the fact that the use of the home office is not an essential condition of the employment contract ; the employee is frree to his home or enter into a rental agreement at any time.

The Ruling Commission came to the same conclusion in a later decision. it stated that a home office cannot constitute a tangible permanent establishment as the space is not at the disposal of the company on a continuous basis (2020.2142).

In another ruling, the Ruling Commission went even further into the criteria that are decisive for a home office to qualify as a permanent establishment. It ruled that the home office does not constitute a permanent establishment since the use of the home office does not constitute an essential condition of the employment contract, the employee is free to choose the location of the home - and thus also of his home office, the employee is not remunerated for renting the home and there are no external signs that justify an attribution of the home office to the company. For example, the company’s website will only use the address of its head office and not the address of the home office (2019.0840).