OECD pushes for tax rulings on Permanent Establishments: new certainty or fresh challenges for EoR models?

Since Covid, the use of Employer of Record (EoR) arrangements has risen worldwide. In recent years, the align or the substance and form of such arrangements from a tax perspective has come under scrutiny, with rules tightening in several jurisdictions. In this light, the OECD’s recent announcement on potentially rolling out a ‘Rulings’ system for Corporate Tax nexus (Permanent Establishment) feels particularly timely.

The OECD’s tax certainty unit recently highlighted their work on an Advance Pricing Agreement (APA) style system to help jurisdictions reach agreement on whether corporate taxpayers have a Permanent Establishment (PE). 

In line with the philosophy that prevention is better than cure, the OECD’s proposed ‘APA’ system for issues such as a Permanent Establishment aims to give taxpayers the certainty they’ve been missing in cross-border tax matters. Or, as the OECD’s Sandra Knaepen puts it “every dispute that you have prevented or avoided is one that you have won.”

Achieving certainty: the PE panacea

Permanent Establishment is a corporate tax concept defined by a country’s tax laws or by their international tax treaties. The OECD model tax convention defines Permanent Establishment as “a fixed place of business through which the business of an enterprise is wholly or partly carried on.”

Getting PE right matters. With Permanent Establishment equating to corporate tax nexus, misjudging it can trigger multi-year double taxation, hefty penalties and interest. 

The risk of unintentionally creating a Permanent Establishment is a grey area of international taxation and managing this risk must be an essential part of any multinational group’s tax governance strategy. 

Key questions multinationals should ask themselves:

• Are you engaged in cross-border business and do not want to trigger a foreign PE?
• Are you aware of the trend towards assuming a PE even in cases where no typical fixed place of business exists?
• Do you have a full visibility over the fast-changing and increasingly restrictive practices of tax administrations in different countries?
• Are you certain that your PE planning is robust or that any PE risk has been fully considered? 

If you can’t answer ‘yes’ confidently, your organisation is exposed to potential PE challenges.

Because PE determinations depend heavily on facts and circumstances, organisations have walked a tightrope of uncertainty for over 100 years of global tax law. Unless they have taken a conservative position by registering as a branch or incorporating in every country in which they have a presence, their position can result in real dispute, double taxation, penalties and interest.

The OECD’s proposed advance engagement process, giving taxpayers seeking PE assurance the opportunity to review their operational and legal facts and circumstances with tax authorities and secure a ruling on APA or PE status , may be a welcome step in reducing that uncertainty.

Permanent Establishment & Employer of Record: does Belgium have the first ‘defacto’ PE APA?

The recent growth of EoR arrangements has further clouded the PE landscape. The operational and legal realities of these set-ups are sometimes blurred, amplifying the Permanent Establishment risk.

Globally, tax authorities are reviewing the EoR rules in their countries. In Singapore for example, the Ministry of Manpower announced in late 2024 that EORs cannot be used to hire non-Singaporean nationals. To hire expats, companies must now set up a representative office or incorporate in Singapore. Germany restricts EoR employment beyond 18 months, while France requires organisations utilising EoR to comply with tighter labour laws and tax regulations.

Belgium’s Flemish government appears to have gone a step further however and may have created the first ‘defacto’ EoR PE ‘ruling’ system. 

Until now, EoR providers and their client companies were required to set out in writing the limits of client authority over employees managed by the EoR, confirming that employment control rests with the EoR.

The Flemish authorities have now gone further, requiring EoR providers to be accredited as temporary employment agencies. Those without a valid licence are prohibited from offering EoR services, though this requirement has not yet been codified or adopted at the federal level.

Put simply, the way in which EoR providers and their clients currently operate does not align with Belgium’s strict laws on temporary employment. Only the EoR provider (i.e. not the client) can give instructions to the employee. Under the new Flemish rules this distinction is now clear. Without this temporary employment agency accreditation - and compliance with its conditions  EoR providers cannot operate.

While the mechanics in Belgium are not directly in line with the OECD’s proposal, it signals a firm step towards codified certainty and regulatory engagement (and perhaps agreement) with regulators and represents an important precedent for taxpayers looking for PE clarity.

Is requisite certainty over Permanent Establishment finally in sight?

Tax certainty is essential for all taxpayers. 

Considering the risks of multi-year double taxation, penalties & interest if taxpayers or authorities make the wrong corporate tax nexus (PE) determination clarity is long overdue. 

Given the time and financial costs involved in potential disputes, the OECD’s focus on preventing unnecessary conflicts is a step in the right direction - “every dispute that you have prevented or avoided is one that you have won.”   

For corporate groups operating globally, trying to navigate international & domestic tax specific rules, moving from the grey into the black & white should be a welcome evolution. 

The new APA system for Permanent Establishment promises to bring clarity where there was once doubt.

Tom Lickess
As Global Head of Tax Advisory and Tax & Accounting Solutions at Vistra, Tom leads global teams helping multinational clients navigate complex international tax, structuring, and compliance challenges. He brings over 25 years of experience advising on cross-border tax matters across multiple industries.

Florence Meigh
As Senior Manager in Vistra’s International Tax Advisory team, Florence specialises in global corporate tax and Permanent Establishment advisory. She supports multinational groups in managing international tax risk and ensuring compliance with evolving global regulations.

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