18.02.2026MOF publishes detailed draft guidance on permanent establishment criteria
Draft guidance aimed at updating guidance from 1999 and includes federal tax court jurisprudence and OECD developments
The German Ministry of Finance (MOF) on 13 February 2026 published a draft decree on the definition of and criteria for a permanent establishment (PE) based on domestic tax law and tax treaty law. The 50-page draft decree includes the current view of the tax authorities and is aimed at updating and replacing a decree from 24 December1999 in this regard. Interested parties can submit comments on the draft decree until 13 March 2026.
The draft decree provides a detailed description of the criteria for establishing a PE (e.g., fixed nature of a place of business, degree of permanency, business activity through which the business of an enterprise is carried out, being at the disposal of the principal, etc.) and highlights that these criteria have to be analyzed on a comprehensive basis based on the facts and circumstances of each case and taking into account the jurisprudence of the federal tax court. The draft decree also provides a description of the differences in the PE definition under domestic tax law and certain tax treaty rules (e.g., the exception for preparatory and auxiliary activities based on article 5(4) of the OECD Model Tax Convention on Income and on Capital (“OECD model rules”), which does not exist under domestic tax law).
The draft decree includes guidance regarding the definition of a construction or assembly PE (article 5(3) OECD model rules), preparatory and auxiliary activities (article 5(4) OECD model rules), anti-fragmentation clause (article 5(4.1) OECD model rules), and agency PE (article 5(5) OECD model rules).
In the second part of the draft decree, the tax authorities provide their view on specific situations that are of high relevance for taxpayers and which refer to recent decisions of the federal tax court. The draft decree includes several examples where the tax authorities provide guidance. The draft decree (again) confirms the view of the tax authorities that a home office should generally not give rise to a PE, which view was confirmed by the tax authorities in February 2024 (see GTLN dated 03/01/2024). It is stated that management activities that are provided out of a home office might nevertheless result in the establishment of the place of management of an entity and result in a management PE. The draft decree also refers to the latest OECD guidance related to the use of a home office for outbound scenarios, i.e., situations where a PE of a German company might be established abroad.
Other specific situations that are described in the second part of the draft decree include activities that take place on the premises of a third party, desk-sharing situations, activities of service and management companies, the treatment of market stands, activities of internet influencers, activities on ships, energy systems, and staff provision/operating facility lease scenarios. In the tax authorities’ view, the mere leasing of real estate and machinery and equipment attached to the real estate to a tenant does not constitute a PE of the lessor. Only where the lessor carries out its own entrepreneurial activity through the lease of business facilities and machinery and equipment, a PE might be established for the lessor. The draft decree illustrates this in several examples regarding the leasing of container terminals, 3D printers, and conveyor technology, differentiating between pure leasing without own entrepreneurial activity and leasing combined with own service provision.
Deloitte Germany comments
The draft decree does not include any surprises and provides a useful summary of the view and position of the tax authorities regarding the definition of a PE. It includes detailed and comprehensive statements regarding the definition of a PE under domestic tax law and tax treaty law. The reference to recent PE jurisprudence of the federal tax court, which was not yet published in the federal gazette, provides an indication that the tax authorities are going to follow the jurisprudence of the federal tax court in this regard.
The draft decree provides useful guidance from the tax authorities and certainty for taxpayers. Questions around the establishment of a PE are highly relevant for taxpayers and continue to be an important issue for cross-border activities. The draft decree highlights the importance of this topic and the need for taxpayers to monitor their cross-border activities.
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