In case you need to inform a client about possible PE risk with a Talent in onboarding, use the following speech card.
Long Version
Dear XX,
I wanted to let you know about a permanent establishment (PE) risk that is associated with XXXX's onboarding.
Permanent establishment (PE) is created by any business activity considered sufficient for a corporation to be viewed as having a stable and ongoing presence in a foreign country. If the activity results in some locally created revenue, then it is possible that the host country may impose corporate taxes at the local rate.
As the term implies, ‘permanent establishment’ will be triggered by a company’s activities that reflect ongoing and persistent revenue creation, rather than sporadic or isolated business efforts. The constitution of a PE is highly dependent on the type of position, title, and activities abroad. The relevant regulation in each case is dependent on local law and therefore different from country to country.
Generally, we can refer to the guidelines of the OECD treaty when it comes to PE, as most countries generally adhere to them.
The four main criteria in the guidelines are:
fixed place/ physical presence,
locally generated revenue,
sufficient time frame and
control of local activities and the ability to sign contracts.
Generally speaking, every accommodation beside the Home Office, a presence over 183 days in 12 months, and positions that have the authority to sign contracts and undertake significant business decisions on their own, might trigger a PE. To exclude a risk for certain, such positions should be covered by a local tax expert.
Please keep in mind that these are just general guidelines. Please bear in mind that WorkMotion is an HR tech platform. As such, we kindly ask for your understanding that we cannot provide any type of specialised legal or tax consulting service. As you are most likely aware, the regulatory background for this is that the legal profession in Germany is strictly regulated by the German so-called Rechtsdienstleistungsgesetz (RDG), according to which legal consulting services are essentially reserved to lawyers in law firms. Even WorkMotion's legal department is not allowed to provide legal consulting services to our clients. Yet, on our mission to enable global employment at the push of a button, we do, of course, need to provide our clients with some information about the conditions of employment abroad.
WorkMotion does not assume any obligation, liability or guarantee that there is no permanent establishment risk (Betriebsstättenrisiko). This is mainly due to the fact that this would require a specific legal and tax analysis, which we are legally prohibited from providing, for the above-stated regulatory reasons of German compliance.
For more info on the PE risk, please feel free to check here.
Looking forward to your response and confirmation
Short Version
Dear XXX,
I would like to inform you that the Onboarding of XXX might raise a PE Risk.
Here is everything you need to know about the PE risk.
Please bear in mind that WorkMotion is an HR tech platform. As such, we kindly ask for your understanding that we cannot provide any specialised legal or tax consulting services.
Kindly let me know that you understand and accept the risk of the permanent establishment, so we can finalise the drafting of the contract.
Thank you, and looking forward to your confirmation.
Best,
Submitter: Engy