How Remote Workforce Programs Trigger Myriad Tax Problems—Part Two
Analyzing taxable presence and nexus issues for employers

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The coronavirus pandemic created an explosion in remote workforce programs, some temporary but others indefinite or permanent. Remote work situations can arise in a wide range of settings—some are planned, and others arise well after the fact as a surprise to the in-house tax team.

One critical tax issue introduced by remote work is the tax risk that employees scattered across borders—working from jurisdictions where the employer currently has no taxable presence—can give rise to a taxable presence, or nexus, in a new tax jurisdiction for the corporate employer.1 In the event that the activities of a remote employee establish a taxable presence in a new jurisdiction, the employer will most likely be obligated to comply with corporate tax registration, filing, and potential tax liability and may separately or additionally face tax registration, reporting, and withholding obligations with respect to employee compensation and benefits.

Part One of this article appeared in the March-April issue of Tax Executive. In Part Two, we discuss the US tax framework for assessing when a foreign corporate employer has established a taxable presence in the United States, as well as the treaty exceptions to such a rule under the permanent establishment (PE) treaty definition.2 Our article provides an overview of the US income tax considerations for corporate employers, potential treaty implications, the tax implications for employees, and the US state and local nexus considerations and developments for domestic (that is, US state-to-state) remote work scenarios, before turning to potential mitigation strategies for employers.

US Taxable Presence for Foreign Corporate Employers

When does a US-based remote worker trigger a US taxable presence for her foreign corporate employer? From a federal tax perspective this issue turns on the determination of whether the activities of the remote employee (or multiple employees) cause the foreign corporate employer to be considered “engaged in trade or business within the United States” within the meaning of Section 882(a)(1).3 If the activities of the remote employee rise to the level of a US trade or business, it will generally cause the foreign corporation’s “effectively connected” taxable income for the taxable year to be subject to the US corporate tax.4 The Internal Revenue Code and regulations provide a fairly vague and narrow range of guidance for determining whether the activities of a foreign corporation (through its employees or certain dependent agents) conducted within the United States meet the threshold of a trade or business. To add to the challenge, the development of the law has occurred largely based on a series of older cases with unique fact patterns and adopts broad legal principles that can prove to be less than precise when applied to many modern factual scenarios.

What is a “trade or business,” and what is the level of activity required for a foreign corporation to be characterized as conducting a US trade or business? Unfortunately, our answer must be “it depends on the facts,”5 and equally unfortunately the Internal Revenue Service is ordinarily unwilling to issue rules addressing this concern.6 When examining all the facts and circumstances of a foreign taxpayer’s activities in the United States, the courts are charged with making “a quantitative and qualitative analysis of the services performed.”7 With respect to a remote employee, the analysis should evaluate the activities the employee performs while physically located in the United States, the quality and importance of such activities, and how much time during a taxable year the employee spends in the United States performing these activities.

The courts have generally found that in order for a US trade or business to exist, the foreign taxpayer’s profit-oriented activities in the United States must be “considerable . . . as well as continuous and regular.”8 In contrast, certain sporadic, noncontinuous, and casual activity does not rise to the level of a US trade or business.9 Functions that are ministerial and clerical in nature, involving very little exercise of discretion or business judgment necessary to the production of income are typically insufficient to constitute a US trade or business.10 It is important to note that it is difficult to apply these concepts in practice, and the courts and the IRS have found instances where activities performed within an arguably narrow range that are “self-contained” can nonetheless give rise to a US trade or business.11

Remote employees present several challenges to a US trade or business analysis. To track and assess these tax risks an employer must have a meaningful and reliable way to monitor the travel and business activities of personnel. Based on our experience, most companies have not yet adopted detailed policies or tracking mechanisms to identify and assess the number and quality of business activities carried out by remote and traveling employees. Some companies have started to track the location of employees on business days through computer logins, mobile phone activities, or security badge swipes at company business locations.

If a foreign corporation is found to be engaged in a US trade or business for a taxable year, the income that is “effectively connected” with that trade or business is subject to US tax.12 Section 864(c)(3) generally provides that the US-sourced active income earned by the foreign taxpayer will be characterized as effectively connected with the taxpayer’s US trade or business. In contrast, passive income and capital gains are considered to be effectively connected with the taxpayer’s US trade or business only if that passive income or gain is derived from assets used in or held for use in the trade or business, or the activities of the trade or business were a material factor in the realization of the income or gain.13 Although foreign-source income generally is not included as effectively connected income, there are exceptions for certain categories of foreign source income generated through a US office of the foreign taxpayer.14

Careful consideration should be given to filing a “protective” federal return15 if there is any chance that the foreign corporation risks triggering a US trade or business during a particular taxable year. Section 881(c)(2) provides that a foreign corporation that has a US trade or business is eligible to receive the benefit of deductions and credits allowed to it for purposes of determining its tax liability only if the corporation files a tax return.

Any income realized by a foreign corporation that is not effectively connected with a US trade or business, but is nonetheless characterized as US-sourced income, is subject to a thirty percent tax on gross income amounts.16 In the event a foreign corporation disposes of any US real property interest, any gain realized is taxed as if the foreign corporation were engaged in a US trade or business for the year and that the gain was effectively connected with the trade or business.17

Treaty Exceptions to Taxation of the Foreign Corporate Employer

The US treaty18 obligations override the US trade or business/ECI concept for qualified19 resident corporations. Treaties limit taxation rights of a government to the business profits attributable to a permanent establishment. The PE provision effectively determines the right of a jurisdiction to tax the profits of a foreign enterprise, or foreign corporate employer for purposes of our discussion.20 Thus, a remote employee (or group of employees) working in the United States raises the issue of whether her (or their) presence triggers a PE for the corporate employer, subjecting its profits to taxation in the United States. As with the US trade or business analysis, the PE test depends heavily on a facts-and-circumstances analysis that focuses on the quantity and quality of business operations conducted in the jurisdiction.

The treaties generally define a PE as a “fixed place of business through which the business of an enterprise is wholly or partly carried on.”21 This key language from the PE definition contains three components critical to the PE analysis: 1) the determination of whether there is a “place of business”; 2) the place of business must be “fixed”; and
3) the business of the enterprise must be “carried on” through the fixed location.

The term “place of business” has a broad definition and, as explained below, can capture the activities of a remote employee in a number of different settings. As explained in the OECD Commentary, a “place of business includes any premises, facilities or installation used for carrying on the business of the enterprise whether or not they are used exclusively for that purpose,” and to any space made available at the business’ disposal.22 A business need not own or rent a place of business, or have any formal right to use such a space, and a place of business may be as simple as a dedicated space made available to the business in the facilities of another enterprise.23 Although it is not necessary to have a formal legal right to use a particular location to trigger a PE, it is necessary that the business has effective power to use the location, and does so fairly regularly, such that it is reasonable to consider the location to be at the disposal of the enterprise.24

Consider an employee who has been historically employed in New York by a US corporation. We will assume that the US corporation has a French subsidiary with offices in Paris. The employee wishes to temporarily work remotely from Paris from June 1 to September 30, 2023, during which time she intends to work from the French subsidiary’s offices. The employee will be given a dedicated cubicle in the subsidiary’s office and a security badge that allows her to come and go as she wishes. Providing a dedicated space and unfettered access to the French subsidiary’s offices has a high risk of triggering a place of business, and potentially a PE, in France for the US corporation.25 Some ways to mitigate this PE risk would include not giving the employee assigned office space at the French subsidiary, requiring her to sign in as a visitor each day she works from the office, and not providing her a security badge while she works in France.

Home offices present inherent PE risks and should be carefully considered in the context of any remote employment program. The home office PE exposure turns on whether the space is at the disposal of the business. The determination of whether a home office constitutes a location at the disposal of the business depends on whether its use is continuous at the direction of the business or intermittent and incidental. As the OECD Commentary addressing PE status notes,

Where . . . a home office is used on a continuous basis for carrying on business activities of the enterprise and it is clear from the facts and circumstances that the enterprise has required the individual to use that location to carry on the enterprise’s business (e.g. by not providing an office to an employee in circumstances where the nature of the employment clearly requires an office), the home office may be considered to be at the disposal of the enterprise.26

This OECD Commentary guidance on home offices warrants consideration when drafting and managing any remote work policy. For example, designating the employee’s home workspace as her principal office is a factor that would suggest that space might constitute a PE. Similarly, a remote policy that requires the employee, when not otherwise traveling or on PTO, to be present in her home office during business hours can also raise PE risks. Hybrid work arrangements that designate the employee’s office as being in a standard business location (that is, at a company’s office space) may be more advantageous from a PE risk management standpoint.

Discussions around PE risks with remote and hybrid work arrangements frequently raise a timing question such as “We are inclined to allow the employee to work from [foreign location]; how long we can allow her to do so without triggering a PE?” Like the US trade or business analysis, the answer depends on the facts and circumstances and the company’s tolerance for risk. There are generally no safe harbor exceptions to PE status. The OECD Commentary notes that a PE will be triggered only if the place of business has “a certain degree of permanency, i.e., if it is not of a purely temporary nature.”27 It further provides that, on the other hand, a “place of business may, however, constitute a permanent establishment even though it exists, in practice, only for a very short period of time because the nature of the business is such that it will only be carried on for that short period of time.” In other words: it depends.

The OECD Commentary provides that in practice PEs normally have not been considered to exist in situations where a business was carried on through a fixed place for a period of under six months.28 In contrast, many cases find a PE to exist where the place of business was maintained for a period longer than six months.29 Although the OECD guidance provides no safe harbor, six months appears to be a good outside boundary to consider when managing a potential PE risk with mobile employees who are not otherwise high risk, such as high-level management personnel (including officers) or employees who regularly negotiate and/or execute contracts. Note that several US treaties contain service PE provisions that introduce specific PE thresholds that are far lower than the six-month trend noted in the OECD Commentary. For example, the US–India Treaty provides that furnishing certain services for a period or periods aggregating more than ninety days within any twelve-month period will constitute a PE.30

Taxation of Foreign Remote Employees

Nonresident remote employees face two potential federal income tax schemes when working from the United States. Pursuant to Section 871(b)(1), nonresident alien individuals who are engaged in a trade or business within the United States during the taxable year shall be subject to the graduated rates of income tax under Section 1 with respect to their taxable income that is effectively connected with the conduct of a trade or business. If the employee’s activities in the United States are limited, such that she is not engaged in a US trade or business, her wages and compensation attributable to her activities in the United States may be instead subject to a thirty percent gross tax,31 which is subject to withholding by the employer.32

As noted above, the US trade or business standard is heavily factual and is primarily defined by caselaw. Section 864(b) contains several exceptions to US trade or business characterization. Relevant for the typical business employee or contractor,33 the activities of a nonresident alien individual are excluded from characterization as a US trade or business provided such individual: 1) is temporarily present in the United States for a period or periods not exceeding a total of ninety days during the taxable year; 2) her compensation for services does not exceed in the aggregate $3,000; and 3) she is working for a nonresident alien, foreign partnership, or foreign corporation, not engaged in a US trade or business.34 If the employee’s activities are such that she is engaged in a US trade or business during a taxable year, the compensation that is ECI is subject to the wage withholding rules of Sections 3401 through 3451.

The sourcing rules contain an exception applicable to compensation for personal services that generally mirrors the US trade or business exception. Section 861(a)(3) provides that compensation for personal services performed in the United States, which are generally characterized as US-sourced, will nonetheless be characterized as foreign source provided: 1) the labor or services are performed by a nonresident alien individual temporarily present in the United States for a period or periods not exceeding a total of ninety days during the taxable year; 2) the compensation does not exceed $3,000 in the aggregate; and 3) the compensation is paid for labor or services performed as an employee or under contract with a nonresident alien, foreign partnership, or foreign corporation, not engaged in a trade or business in the United States, or a foreign office of certain US employers.35 By characterizing the first $3,000 of income as foreign source, the Section 861(a)(3) exception effectively eliminates any US tax or withholding as Section 871(a) is limited to US-sourced income.

The US treaties provide a generous exemption from US taxation that is available for treaty-qualified resident employees. An example of the “dependent personal services” exception appears in Article 14.2 of the US Model Treaty, which provides that compensation received from employment exercised in the other contracting state shall not be subject to taxation in that jurisdiction if 1) the recipient is present in that state for a period or periods not exceeding 183 days for all twelve-month periods commencing or ending in the taxable year;
2) the compensation is paid by, or on behalf of, an employer who is not a resident of that state; and 3) the compensation is not borne by a permanent establishment that the employer maintains in that state. Note there is no dollar threshold for the dependent personal services exception, which is particularly helpful given the low $3,000 exemption provided in Sections 861(a)(3) and 864(b)(1).

State and Local Nexus Considerations for Remote Work

Employers that have grown accustomed to allowing employees to work in states in which those employers do not otherwise operate must fully understand the corporate income/franchise tax nexus implications of remote work.36 When employees work in states in which their employers do not otherwise operate, it can trigger corporate income/franchise tax nexus with that state and expose the employer to the state’s tax regime. As a result, most employers must be cautious and thoughtful about their business decisions to expand to or locate their employees in other states.

The nexus determination hinges on whether a business has sufficient minimum contacts with a particular state for the state to constitutionally subject the business to the state’s tax regime. All nexus standards must meet two distinct clauses of the US Constitution—the due process and commerce clauses.

The due process clause requires some minimum contact with the jurisdiction “such that the maintenance of the suit does not offend ‘traditional notions of fair play and substantial justice.’”37 Moreover, if a foreign corporation purposefully avails itself of the benefits of a state’s economic market, it may subject itself to the state’s jurisdiction, even if it has no physical presence in the state.38 Furthermore, to meet due process the income attributed to the state for tax purposes must be rationally related to “values connected with the taxing state.”39

The commerce clause requires applying the four-part Complete Auto Transit test, which asks whether the tax asserted applies to an activity with substantial nexus in the state, is fairly apportioned, discriminates against interstate commerce, and is fairly related to the services the state provides to the taxpayer.40 Physical presence is not necessarily required in order for a tax to comply with the commerce clause requirements.41 Rather, the question is whether the taxpayer has “availed itself of the substantial privilege of carrying on business in that jurisdiction.”

State courts have opined on the level of physical presence that may trigger income tax nexus. In Telebright Corporation Inc., the New Jersey Superior Court determined that the presence of one employee who was producing a component of Telebright’s service offerings satisfied the minimum connection requirement under the commerce clause—meaning that the corporate taxpayer had nexus in New Jersey.42

Additionally, several states have adopted bright-line factor-based nexus tests for establishing corporate income tax nexus in a state. These tests provide that regardless of a taxpayer’s physical presence, it may be subject to income tax if its economic activities meet certain thresholds in the state, such as sales sourced, wages paid to employees, or value of property in the state.43 Not all states have bright-line factor thresholds. Although physical presence remains the main indicator of nexus, it is important for employers to familiarize themselves and understand the economic nexus factors adopted by a handful of states.

It is also important for companies claiming the benefit of Public Law 86-272 (the Interstate Income Act of 1959) to pay particularly attention to their remote workforce. Public Law 86-272 provides that companies are not subject to a state’s income tax, despite having the requisite nexus, if they are sellers of tangible personal property into a state where the only other connection with the state is the “solicitation of orders” that are approved and shipped from outside the state. Remote employees whose activities in a state exceed the solicitation of sales could negate a company’s existing Public Law 86-272 protection within a particular jurisdiction if those activities go beyond the “solicitation of sales.” Therefore, companies should consider their remote employees’ job responsibilities and whether remote work could impact claims of Public Law 86-272 protection.

Mitigation Strategies for Remote Employment Situations

Several mitigation strategies should be considered when a company faces a cross-border remote worker scenario and must manage any resulting PE and nexus risks. These strategies include transfer, secondment, a shift to independent contractors, using professional employer organization (PEOs), and using global employer companies (GECs).44 Implementing and managing any of these approaches requires a multidisciplinary review and analysis of employment and labor laws, benefits, immigration, regulatory implications, and business licensing and registration, among other considerations.


If the business operates a local entity (in either the state or country from where the employee will work while remote), it may be possible to transfer the employee to that local entity while she works remotely. Although the transfer option is typically the most conservative approach from a PE and nexus standpoint, it frequently raises benefits issues (particularly across borders) and employee management issues in the local jurisdiction (for example, differing compensation scales/systems) that make transferring the employee into the local entity problematic. Transfers often necessitate introducing an intercompany services agreement between the transferring and transferee companies to capture and charge out the activities of transferred employees to the extent that such activities continue to benefit the transferring company. Changing employees’ line of reporting as well as curtailing or modifying some employee roles and responsibilities following the transfer—such as the ability to negotiate and conclude contracts and liabilities of the transferring company—may be necessary.


Another option is a secondment (or employee lease) arrangement, which involves one entity (which we will call the “home company”) lending an employee to a second company (the “host company”). The secondment approach allows the employee to remain on the payroll and benefit plans of the home company while she works at the location of and for the host company. In this scenario, the host company will reimburse the home company for the cost45 of the employee during the term of the secondment. The secondment arrangement should be documented in an intercompany secondment agreement between the home company and the host company. The intercompany secondment agreement should make clear that the seconded employee will work exclusively for and at the direction of the host company during the term of the secondment. The home company should issue a separate notice or agreement to the seconded employee detailing those same terms. A properly structured secondment should cause the seconded employee to become a de facto employee of the host company. This approach, if implemented properly, can reduce the home company’s risk of establishing a PE in the foreign jurisdiction where the employee performs services during the term of the secondment.

Shifting to Independent Contractors

A third option is to move the employee to an independent contractor role while she works remotely. The independent contractor approach has a few inherent limitations and is not without tax risk, particularly if the relationship is akin to full-time employment. There are also structural challenges if the agreement is structured to limit the risk of a dependent agent characterization (and associated PE/nexus risk). For example, from a tax perspective the independent contractor agreement should make clear that the arrangement is nonexclusive, should include a per-project or hourly fee structure (that is, not a salary or something that effectively replicates a salary), and should not guarantee a profit to the independent contractor. The risk of choosing the independent contractor option is that the “independent contractor” might be determined to be a de facto employee, which directly contradicts the goal of mitigating the nexus and PE risk.

Professional Employer Organizations

Another way to mitigate risk is to use professional employer organizations (PEOs) located in the jurisdiction from which remote individuals will work. Typically the PEO employs the remote individuals (whom we will call “PEO employees”). The PEO then enters into a service contract with the corporation. The service contract provides that the PEO (through the PEO employees) will perform services for the corporation as an independent contractor. The PEO approach, like the independent contractor option, has inherent limitations when PEO employees work exclusively for the company. As with independent contractors, to provide a defensible position on PE/nexus issues, the service contract between the company and the PEO should establish that the PEO and PEO employees are independent contractors providing services to the company. Any provisions in the service agreement between the corporation and the PEO that provide the company with typical employment-type controls over PEO employees or enable the company to control the PEO’s hiring/firing decisions, to set compensation, to approve leaves or vacation time, and to direct and control PEO employees from day to day can undermine the position that the PEO employees are not dependent agents of the corporation.

Global Employer Companies

The use of global employer companies (GECs) is another popular approach to PE and nexus mitigation. The GEC structure does not necessarily seek to avoid creating nexus or a PE in a jurisdiction. Rather, the GEC is used to “ring-fence” these risks and centralize compliance obligations. Under the GEC strategy, remote employees are either assigned or seconded to an affiliate corporation that will serve as the GEC for the group. The GEC then enters a service agreement with the company (or multiple affiliated companies) to provide services that track the functions of the individuals assigned or seconded to the GEC. The service agreement is structured to confirm that the GEC is acting as an independent contractor with respect to the services it provides. The service agreement also seeks to limit the business risks for the GEC, which should in turn limit the profits realized by the GEC for transfer pricing purposes. The GEC manages the PE and nexus tax filings, compliance, and liabilities for the jurisdictions in which the GEC has remote employees. The GEC acts as a PE and nexus “blocker” for the other affiliates in the group.


The coronavirus pandemic has triggered an explosion of remote workforce programs that many employers are choosing to make indefinite or permanent for reasons including recruitment and retention of employees. Cementing remote and hybrid work culture in American business appears to be one of the lasting effects of the pandemic.46 The tax exposures and associated liabilities with remote and hybrid work are easily triggered, and the associated liabilities can grow exponentially over a short period. For the proactive, a host of mitigation strategies are available to address the tax risks for corporate employers with remote and hybrid employees. These strategies, if implemented correctly, can alleviate some of the tax risks and compliance obligations.

Barton W. S. Bassett, Cosimo Zavaglia, Mary B. Hevener, and Steven P. Johnson are partners at Morgan, Lewis & Bockius LLP.


  1. It is important to note that cross-border (domestic and international) remote employees can trigger a wide range of business risks beyond taxation, such as business licensing requirements, regulatory filings and licensing, and employment law considerations. This article’s analysis is limited to income tax considerations from the general perspective of a corporate taxpayer. Businesses operated as partnerships and as sole proprietorships generally face the same tax issues addressed here but are nonetheless beyond the intended scope of this article.
  2. The principles and framework of this analysis are also relevant to a US-based multinational with remote employees working outside the United States, although the local jurisdiction’s laws will be in control subject to any applicable treaty.
  3. Section 882(a)(1) provides: “A foreign corporation engaged in trade or business within the United States during the taxable year shall be taxable as provided in [S]ection 11, 55, or 59A, on its taxable income which is effectively connected with the conduct of a trade or business within the United States.”
  4. Section 882(a)(1).
  5. See Revenue Ruling 88-3, which revokes Revenue Ruling 73-277 (“[T]he determination of whether a taxpayer is engaged in a trade or business within in the United States is highly factual”). A comprehensive discussion of the “trade or business” case law is not within the intended scope of this article. We have included a high-level summary of some of the key principles to provide an overview of the topic, with citations for some of the lead case authorities.
  6. Revenue Procedure 2023-7, Section 4.01(4), provides that questions as to whether a taxpayer is engaged in a trade or business within the United States and whether income is effectively connected with the conduct of a trade or business in the United States are “areas in which letter rulings and determination letters ordinarily will not be issued.”
  7. Scottish Am. Inv. Co. v. Commissioner, 12 T.C. 49, 59 (1949) notes that “In cases such as these, it is a matter of degree, based upon both a quantitative and qualitative analysis of the services performed, as to where the line of demarcation should be drawn.”
  8. Pinchot v. Commissioner, 113 F.2d 718, 719 (2d Cir. 1940); De Amodio v. Commissioner, 34 T.C. 894, 906 (1960), affirmed, 299 F.2d 623 (3d Cir. 1962); Spermacet Whaling & Shipping Co. v. Commissioner, 30 T.C. 618, 634 (1958) affirmed, 281 F.2d 646 (6th Cir. 1960).
  9. For examples, see Continental Trading v. Commissioner, 265 F.2d 40, 44-45 (9th Cir. 1959), certiorari denied, 361 U.S. 827 (1959), which determined that isolated, noncontinuous, and casual transactions are not sufficient to constitute a trade or business; Pasquel v. Commissioner, 12 T.C.M. 1431 (1953), which held that a nonresident alien was not engaged in a trade or business within the United States due to limited involvement in a single, isolated loan transaction; and Linen Thread Co. v. Commissioner, 14 T.C. 725 (1950), which held that two small, isolated transactions did not give rise to a trade or business within the United States.
  10. Spermacet, 30 T.C. at 633-34 (1958), found the actions of the taxpayer’s agents in the United States to be “ministerial and clerical in nature, involving very little exercise of discretion or business judgment necessary to the production of the income in question.”
  11. Johansson v. U.S., 336 F.2d 809 (5th Cir. 1964) found that a nonresident alien boxer’s participation in a title fight held in the United States constituted a US trade or business. Revenue Ruling 58-63, amplified by Revenue Ruling 60-249, found that participating in a single horse race in the United States could constitute a US trade or business.
  12. Section 882(a)(1).
  13. Section 864(c)(2).
  14. Section 864(c)(4).
  15. The instructions for IRS Form 1120-F provide in relevant part: “If a foreign corporation conducts limited activities in the United States in a tax year that the foreign corporation determines does not give rise to gross income that is effectively connected with the conduct of a trade or business within the United States, the foreign corporation should follow the instructions for filing a protective return to safeguard its right to receive the benefit of the deductions and credits attributable to that gross income under Regulations section 1.882-4(a)(3)(vi) in the event that it is subsequently determined that the original determination was incorrect. A foreign corporation should also file a protective return if it determines initially that it has no U.S. tax liability under the provisions of an applicable income tax treaty (for example, because its income is not attributable to a permanent establishment in the United States).”
  16. Section 881(a).
  17. Section 897(a).
  18. For purposes of this discussion, we refer to the provisions of the 2016 U.S. Model Treaty and certain Commentary to the 2017 OECD Model Tax Convention on Income and on Capital.
  19. 2016 U.S. Model Treaty, Article 22.
  20. The PE determination does not control all local tax and business filing obligations. A business may not have a PE based on the treaty definition, but nonetheless may still have an obligation to register and file for purposes of value-added tax (VAT) or goods and services tax (GST) and may also be required to comply with other local business filing obligations.
  21. 2016 US Model Treaty, Article 5.1.
  22. OECD Commentary on Article 5, paragraph 10.
  23. OECD Commentary on Article 5, paragraph 10.
  24. OECD Commentary on Article 5, paragraph 12, states, “Whether a location may be considered to be at the disposal of an enterprise in such a way that may constitute a ‘place of business through which the business of [that] enterprise is wholly or partly carried on’ will depend on that enterprise having the effective power to use that location as well as the extent of the presence of the enterprise at that location and the activities it performs there.”
  25. See example in OECD Commentary on Article 5, paragraph 15.
  26. OECD Commentary on Article 5, paragraph 18. The OECD issued two policy guidance papers that address the application of residency rules and PE during the COVID-19 pandemic: “OECD Secretariat Analysis of Tax Treaties and the Impact of the COVID-19 Crisis” (April 3, 2020) and “Updated Guidance on Tax Treaties and the Impact of the COVID-19 Pandemic” (January 21, 2021).
  27. OECD Commentary on Article 5, paragraph 28.
  28. OECD Commentary on Article 5, paragraph 28.
  29. OECD Commentary on Article 5, paragraph 28.
  30. US–India Treaty, Article 5.2(l).
  31. Section 871(a)(1)(A).
  32. Section 1441.
  33. Section 864(c)(2) contains separate exceptions for certain trading in stock and securities as well as commodities.
  34. Section 864(b)(1). Pursuant to Treasury Regulations Section 1.864-2(b)(2)(iii), for purposes of the Section 864(b)(1) exception, it is irrelevant whether the services of nonresident aliens are performed as employees or under any form of contract with the person for whom services are performed. Further, Treasury Regulations Section 1.864-2(b)(2)(iv) provides that the $3,000 limitation does not include pensions and retirement pay attributable to the services performed in the United States, nor does it include travel advances and reimbursements that nonresident aliens are required to track from their time in the United States.
  35. Section 861(a)(3)(C)(ii) defines U.S. employers to include citizens and residents of the United States, a domestic partnership, and a domestic corporation, provided the labor or services are performed for an office or place of business maintained in a foreign country or in a possession of the United States by such individual, partnership, or corporation.
  36. Employers should also consider the local income/franchise tax implications of having employees in different localities to the extent the localities impose a local income/franchise tax.
  37. Quill Corp. v. North Dakota, 504 U.S. 298, 307 (1992), overruled on other grounds, South Dakota v. Wayfair Inc., 585 U.S. ___, 138 S. Ct. 2080 (2018).
  38. Quill, 504 at 307, citing Burger King v. Rudzewicz, 471 U.S. 462 (1985). In nontax cases, the Supreme Court has stated substantial connection under the due process analysis must come from purposeful action of the person whom the state seeks to subject to its jurisdiction. Asahi Metal Industry Co. v. Superior Court of California, 480 U.S. 102 (1987).
  39. North Carolina Department of Revenue v. Kimberley Rice Kaestner 1992 Family Trust, 139 S. Ct. 2213, 2220 (2019); and Hans Rees’ Sons Inc. v. North Carolina ex rel. Maxwell, 283 U.S. 123 (1931).
  40. Complete Auto Transit Inc. v. Brady, 430 US 274 (1977).
  41. Wayfair, 138 S. Ct. 2080.
  42. Telebright Corp. Inc. v. Director, New Jersey Division of Taxation, 38 A.3d 604 (N.J. Super. Ct. App. Div. 2012).
  43. Alabama Code Section 40-18-31.2; California Revenue & Taxation Code Section 23101; Colorado Code Regulations Section 39-22-301.1(1); and Texas Administrative Code Section 3.586.
  44. It is important to emphasize that our discussion here is limited to U.S. tax considerations. The adoption of any of these strategies should also be analyzed from regulatory, business registration, and employment law perspectives.
  45. It is also theoretically possible to build a markup into the secondment, which must comply with applicable transfer pricing requirements.
  46. At least for the immediate future.

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