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COVID 19 – Article 15 of the OECD Model Convention

Interesting to know is that a couple from Lebanon became subject to Spanish taxation due to the simple fact that they were present in Spain exceeding 183 days because of the Covid-19 measures. According to article 9 of the Spanish “Ley del IRPF” an individual is considered as tax resident for Spanish tax purposes if this individual is present in Spain exceeding 183 days during the calendar year. Consequently, these individuals were required to obtain a NIE number ((Número de Identificación de Extranjeros) and comply with the Spanish tax filing obligations. As far as the pandemic and state of emergency is concerned, the Spanish tax authorities apparently make no exceptions.

The above taxation issue can also apply to employees working remote from another State based on the number of days they are physically present in that State. This is based on article 15 of the OECD Model Convention which relates to income from employment. According to this article, salaries, wages, and other similar remuneration derived by a resident of a contracting State in respect of an employment shall be taxable only in that State unless the employment is exercised in the other contracting State. However, remuneration derived by a resident of a contracting State in respect of an employment exercised in the other contracting State shall be taxable only in the first mentioned State if:

  • the recipient is present in the other State for a period or periods not exceeding in the aggregate 183 days in any twelve-month period commencing or ending in the fiscal year concerned, and
  • the remuneration is paid by, or on behalf of, an employer who is not a resident of the other State, and
  • the remuneration is not borne by a permanent establishment which the employer has in the other State.

As the commentary on article 15 goes, there is only one way to calculate the 183 days period and that is the “days of physical presence” method. The application of this method is straightforward, an individual is either present in a State or he is not.

Considering the special circumstances because of this pandemic, the OECD has issued some a guideline how to deal with specific cases due to Covid-19. As a result, many governments have signed bilateral agreements regarding frontier workers. According to these agreements’ days worked remotely from another State are considered as days of work performed in the State where the employment would have been exercised without Covid-19 measures. These rules apply up to 31 December 2020. At this stage it is not clear if these agreements will be extended beyond the afore mentioned date.

Various studies have shown that an increasing number of employees are working remotely due to the pandemic. In fact, this is encouraged by companies who see the need to work from home for various reasons. Bottomline is that this pandemic is far from over and in this regard, companies and employees need to take their own responsibility to ensure that business activities always continues as much as possible.

As mentioned, however, employees working remotely from another State may also become subject to tax obligation in that State depending on the number of days they are presence in that State.  Companies and employees must therefore be aware of certain unforeseen in this respect such as:

  • Individual income tax filing. The individual may be required to file individual income tax returns in both the working State and the State where the company is established.
  • Payroll. The company may be required to set up and maintain a payroll in the other State as well to comply with local wage withholding purposes.
  • Social security. The employee may become subject to the social security scheme in the other State if he is living and working at least 25% of the time in that State.
  • Supplementary old age pension. The contributions for a supplementary old age pension in the State where the employer is based may change, if the taxable salary is decreases.
  • Employment law. The employment agreement may be governed by the law of the country in which, or from which, the employee habitually carries out his work.
  • Permanent representative.  Depending on the nature of employee’s activities, the company may be subject to corporate income tax in the other State as well.

If the above bilateral agreements to mitigate the undesirable tax effects of pandemic will be terminated, and that will happen sooner or later, companies with employees working remotely from another State must consider their position to avoid the above mentioned additional administrative, tax and tax related burdens.

For further advice and applicable solutions, please feel free to contact your local specialist directly via our global website 



Siegfried R. Jagga

President United Tax Network Worldwide

The Hague – 28 September 2020