Establishment risk during work and international business trips
Permanent establishment risk is the risk that a company will establish a permanent establishment as a result of its business activities in a country other than its home country and will therefore become taxable. A permanent establishment can be an office, a warehouse or a production facility, but a person who works abroad can also be considered a permanent establishment under certain circumstances, or establish it.
Workational and international business trips
Workations and international business trips also involve the risk that is already caused by professional activity during a stay at a permanent establishment in the destination country. Local laws must be observed here. Indicators include (but not exhaustive):
- the type of activity,
- the length of stay,
- Role/seniority/power of representation of the traveller
- Assessment of the durability of the place where the activity is carried out
Other indicators vary by country.
Establishment risk and tax liability
If a company sets up a permanent establishment abroad, this may result in tax liability in the country concerned. The company must then usually file a tax return abroad and pay taxes there. Tax liability may also have an impact on transfer pricing, profit accrual and the exchange of information between the participating countries.
Avoiding the risk of permanent establishments
In order to avoid or at least identify permanent site risks in advance, companies should implement a compliance management system (CMS) for cross-border activities, which ensures that risks can be identified at an early stage or reported retrospectively.
It is advisable to use an automated, software-supported CMS for regular business trips or work abroad in order to identify and implement reporting requirements and certification, as well as risks.
conclusion
Permanent establishment risk is an important factor that companies should consider when doing business abroad. A high volume of work and international business trips can quickly result in companies setting up a permanent establishment abroad and thus becoming taxable. Modern travel compliance automation systems can support this and reduce many hours of manual work and risks.
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