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German tax authorities update guidance on criteria for a permanent establishment

The guidance includes a statement that a home office generally should not create a permanent establishment 

The German Ministry of Finance (MOF) released updated guidance dated 5 February 2024, relating to the criteria for a permanent establishment (PE) as generally defined for domestic tax law purposes under section 12 of the General Tax Code (GTC). Notably, the updated guidance includes a statement that a home office used for remote working generally should not qualify as a PE.  

The key aspects of the updated guidance are summarized below:

A PE requires a fixed place of business that has a certain degree of permanency through which the business of an enterprise is wholly or partly carried on. The fixed place of business must be at the disposal of the enterprise and the disposal has not just to be of temporary nature.

In order to be at the disposal of an enterprise which is not just be of temporary nature, the enterprise generally must have a valid legal position to use a particular place that cannot be withdrawn or changed without further action by the legal owner. A formal legal right to use a particular place is not required for that place to constitute a PE; however, the mere presence of an enterprise at a particular location does not necessarily mean that the location is at the disposal of that enterprise. A PE also can be created at the business premises of a third party if there is legal authorization to use the premises for the business of the enterprise and if employees or subcontractors of the enterprise are working at the business premises.

Transferring the business activities of an enterprise to an independent third party/contractor generally should not be sufficient to create a PE of the enterprise at the premises of the third party/contractor. However, a PE at the premises of the third-party/contractor might be created if the enterprise carries out its own business activities with a certain degree of permanency at the premises of the third-party/contractor (e.g., supervision activities).

The activities of an employee of an enterprise at their home office generally should not create a PE for the enterprise/employer. From a German tax perspective, this also should be the case under an applicable double tax treaty (DTT) pursuant to article 5 (1) and (4) of the OECD Model Tax Convention. In addition, a home office generally should not create a PE for the employer even if:

  • The employer pays or reimburses the employee for (rent) expenses related to the home office and the equipment therein;
  • A rental agreement is concluded between the employer as tenant and the employee as landlord over a certain areas/rooms in the private home of the employee, unless the employer is explicitly authorized to use the areas/rooms for other purposes, e.g., to use the space for other employees or to enter the private home of the employee outside of mere work safety inspections; or
  • No other workspace is made available to the employee by the employer.

The reason for not creating a PE is that the private home of the employee usually is not sufficiently at the disposal of the employer. The situation may be different if an employee exercises management functions of an enterprise in a home office (generally referred to as a “management-PE,” see below).

Every enterprise has at least one PE at the location where management decisions are made (“management-PE”). This principle also should apply to professional athletes, artists, or sports referees. In the absence of other fixed places of business, the private home of an individual or managing director should qualify as a management-PE if actual management activities are carried out there.

The definition of a PE and guidance provided by the tax authorities also applies to self-employed individuals and for individuals generating income from farming and forestry activities.

To the extent that German tax law uses the term “permanent establishment” (unless the term is defined separately), this term generally is determined under German tax law and not by the definition of a PE in an applicable DTT. A PE definition in a DTT that deviates from the German PE definition in section 12 GTC should only be applicable when applying the specific DTT, unless otherwise provided in German tax law.


Even though the updated guidance continues to remain broad and the determination as to whether an activity creates a German PE remains highly fact specific, it provides some helpful guidance and clarifications for taxpayers. The updated guidance stating that the home office of an employee generally should not create a PE is welcomed and provides taxpayers with increased certainty. The updated guidance also shows that the requirement of space being at the disposal of the employer is interpreted in a rather narrow sense for purposes of the German definition of a PE. This might differ from the interpretation in other countries and the OECD, which under certain circumstances considers the home office of an employee a PE of the employer. Diese Mandanteninformation enthält ausschließlich allgemeine Informationen, die nicht geeignet sind, den besonderen Umständen eines Einzelfalles gerecht zu werden. Sie hat nicht den Sinn, Grundlage für wirtschaftliche oder sonstige Entscheidungen jedweder Art zu sein. Sie stellt keine Beratung, Auskunft oder ein rechtsverbindliches Angebot dar und ist auch nicht geeignet, eine persönliche Beratung zu ersetzen. Sollte jemand Entscheidungen jedweder Art auf Inhalte dieser Mandanteninformation oder Teile davon stützen, handelt dieser ausschließlich auf eigenes Risiko. Deloitte GmbH übernimmt keinerlei Garantie oder Gewährleistung noch haftet sie in irgendeiner anderen Weise für den Inhalt dieser Mandanteninformation. Aus diesem Grunde empfehlen wir stets, eine persönliche Beratung einzuholen.

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