Permanent establishment or not?

Permanent establishment or not?

An employee of a German company who lives in Switzerland would like to work from home. The question arises as to whether her home office constitutes a permanent establishment of the company with all the tax and social security consequences in Switzerland.

Decision of the authorities: The Swiss tax authorities do not see a permanent establishment in these circumstances, as the activity is considered an ‘ancillary activity’ and no significant business decisions are made in Switzerland. The employee works from home, without customer contact, acquisition or decision-making authority. All data is stored on servers in Germany.

Requirements for a permanent establishment:

• The facility must be permanent and used by the company.
• A significant part of the business activity must take place there.
• The qualitative aspect depends on the type of activity: subordinate activities do not generally lead to the establishment of a permanent establishment.
• In Switzerland, the quantitative aspect requires at least three full-time employees as an indicator, although this can vary.

Further aspects:

• Social insurance: The assessment by social security authorities may differ.
• Recommendation: Companies should ensure that important contracts and decisions are made at the head office.

Conclusion: It is important for companies to clarify legal issues when working from home on a permanent basis in order to avoid problems with tax and social security authorities.