The Swedish Tax Agency makes a sharp turn in its view on home office driven permanent establishments

By a newly released statement the Swedish Tax Agency makes a sharp turn and significantly alter their view of when an individual’s home office should be at the disposal of the foreign employer. The statement displays a more generous view on an individual’s possibility to choose to work from their home office. It also strengthens the foreign companies’ possibilities to keep qualified employees by abiding by employees’ wishes to a flexible working environment without leading to tax implications and an increased administrative burden for the foreign company.

Background

The Swedish Tax Agency has historically applied a strict view when determining if an employee’s home office should be considered being at the disposal of the foreign employer. This has led to the conclusion that anything more than one day of work from home could create a risk of a permanent establishment in Sweden for the foreign company, assuming all other pre-requisites of a permanent establishment are met. The Swedish Tax Agency’s view has been officially published in a statement released in 2015.

In the 2015 statement the Swedish Tax Agency expressed the view that the work conducted from home should not create a permanent establishment if the work from home is limited to a few hours a week. However, an assessment of the situation at hand should be made and the Swedish tax agency stated that the employer could be considered to have direct or indirect disposal to the employee’s home if work is conducted from home under several days per week, which could create a permanent establishment in Sweden for the foreign company. The mere fact that a foreign company provides an office in another country where the individual could conduct her work was not considered enough to limit the foreign company’s access to the employee’s home with regards to the at disposal of-requirement.

The fact that an individual chose to work from home due to private reasons only, i.e. not driven by the foreign employer, did also not alter the Tax Agency’s view that the home should be considered at the disposal of the foreign employer. This as the Tax Agency considered there to be a direct or indirect agreement (if not in writing, then silent) between the foreign company and the employee allowing her to work from home.

The view displayed in the statement has led to many situations where foreign companies have been deemed to have a permanent establishment in Sweden based on employees working from home as little as 2 days per week, without any consideration taken to the reasons why the individuals work was performed from Sweden. Deloitte has been questioning the view and recently put forward a dialogue question to the Swedish Tax Agency regarding whether employee’s meeting the criteria for the Öresund agreement and working less than 50% in Sweden would create a permanent establishment.

New statement released on home office driven permanent establishments

On May 13th 2022 the Swedish Tax Agency released a revised statement on their view of when an employee’s work from a home (office) creates a permanent establishment for the foreign company. The statement replaces the 2015 statement on the same matter.

The new statement is based on an updated view of when an individual’s home office should be considered at the disposal of a foreign company and have been made in the light of the 2017 version of OECD commentary to the Model Convention regarding home office driven permanent establishments.

A home office should not be considered at disposal of a foreign company if the work carried on from the home office is of a temporary nature. An assessment of whether a home office can be considered at the foreign company’s disposal should only be made when the work performed is carried out to a certain extent and for a certain amount of time.

A home office should be considered at the disposal of the foreign company if the company pays rent or in other ways compensate an employee for a space in her home from where she can work. The fact that the foreign company reimburse or pays compensation for a computer, certain office supplies and necessary working material that are used when working from home does not, according to the statement, lead to the home office being considered at the foreign company’s disposal.

Home office required by the company
If the foreign company does not provide an office space from where the individual can carry on her work an assessment should be made of whether the work conducted from home is a requirement by the company, silent or otherwise. An example of such a requirement could be when a company decides that the employee have to partly carry out the work from the home as the company’s office space is not big enough for everyone to work from there at the same time.

A silent requirement could be that the foreign company does not offer an office space although the work to be carried on requires it. When assessing if a silent requirement is at hand a circumstance to consider is whether the foreign company benefits from, or in other ways has commercial interest in that the work is being carried on from Sweden. This could for example be the case if the company has customers in Sweden that the individual is working towards, or if the work includes sale activities by which the foreign company wants to establish itself on the Swedish market or other markets close to Sweden as this shows a connection and significance between the foreign company’s area of activity and the geographical placement of the employee. The assessment should be made based on the foreign company’s business, merely the fact that the company states that working from home is not a requirement should not be considered sufficient.

The foreign company’s commercial interest in Sweden
If working from home is based on the individuals own wishes and the foreign company does not have any commercial interest or in other ways benefit from the individuals work being carried on from her home the home office should not be considered at the foreign company’s disposal. For example, when the foreign company is not present at the Swedish market and/or if the foreign company might have an office in its resident country from where the individual could perform her work but choses to abide by the employee’s wish to work from home.

The circumstance that a foreign company wants to hire or keep qualified employees and therefore choses to abide by the individuals wish to work from her home is according to the Tax Agency not a factor that should be considered when assessing whether there is a commercial interest or benefit from the work being conducted in Sweden. Cross-border workers are especially mentioned as an example, however, it is the Tax Agency’s view that the assessment should be the same even if the office is not within a commuting distance.

Closely held companies and/or part of the management
For individuals that are in a leading role in a closely held company and/or are part of a foreign company’s management, and by this having an influence on how the business should be carried on, other factors may need to be considered when assessing the risk of the home office creating a permanent establishment. Meaning that the views displayed in the updated statement cannot be considered applicable to those situations automatically. Also, individuals acting as dependent agents are not covered by the updated statement.

Deloitte's comments

During the fall 2021 Deloitte questioned the previous statement issued by the Swedish Tax Agency in 2015, especially in the light of the Öresund agreement regarding cross-border workers and put forward several Danish cases on the same matter to the Swedish Tax Agency, awaiting their comments in the matter. By the updated statement the Swedish Tax Agency makes what seems to be a sharp turn when opening up for work to be conducted from a home office for as much as five days a week without resulting in a permanent establishment.

Not ignoring the fact that neither applicable domestic or international provisions regarding permanent establishment nor case law has changed, it is our view that the updated statement will lead to less home office-situations being deemed permanent establishments as it can be expected that these situations would not be challenged by the Swedish Tax Agency to the same extent which is very good news. The effects on the home office driven permanent establishments that has been deemed to arise after the 2017 version of the OECD commentary to the Model Convention regarding home office driven permanent establishments are yet to be assessed.

Authors
Sara Bolmstrand, Mato Saric and Sara Trägårdh