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"Work on the Move": Rethinking Taxation of Labour Income under Tax Treaties, 5 International Tax Studies 2, pp. 1-26 (2022)
Abstract
Labour, in all its dimensions, has been "on the move" in the last few years. Before the pandemic, labour mobility has mostly interested only a fraction of the working population, such as highly skilled and high-net-worth individuals. COVID-19 has, however, expanded the extent of labour mobility and the categories of workers involved. This contribution discusses four major changes in labour patterns: (i) home office work; (ii) non-standard forms of employment; (iii) digital nomadism; and (iv) the decentralization of jobs. In particular, the article illustrates how a "work-from-anywhere" scenario may impact the taxation of labour income under tax treaties. Using mainly the OECD Model as a reference, the article discusses difficulties related to the application of physical presence as a sourcing rule for employment income, the distinction between dependent and self-employment income, and the concepts of home office and fixed base. Based on the analysis provided, the author formulates tentative proposals for reforming the current tax treaty treatment of labour income. Specific recommendations include the introduction of a new article jointly dealing with the taxation of labour income, a reviewed scope of application of the physical presence criterion and tax treaty definitions of home office and fixed base.
... It is clear from the wording of Article 15 (1) and (2) of the OECD ICC that the place of work is crucial. It is where the work is performed that determines where the employee's income is taxed unless Article 15(2) of the OECD Model Convention applies (Beretta, 2022). How is this concept to be understood? ...
Digital nomads are a new generation of workers who go beyond traditional
organisational boundaries, bringing disruptive business models to various
industries with different work cultures and valuing different types of capital.
Although work mobility is not a new concept, it has gained significant support
after the COVID-19 pandemic, with many people starting to work remotely
and this reflecting on their lifestyles. In this context, the aim of the study is to
analyse the challenges faced by digital nomads from an individual taxation
perspective and within the framework of international taxation principles.
Based on the analysis of examples and the presentation of some alternatives,
this paper considers proposals for amending the Model Agreements” rules on
the taxation of income from employment and the provision of independent
services to remove the strict requirement of physical presence
For a critical discussion of the concept of "employment" under tax laws in light of the recent labour market developments, see J. Freedman, Employment Status, Tax and the Gig Economy -Improving the Fit or Making the Break
For a critical discussion of the concept of "employment" under tax laws in light of the recent labour market developments, see J. Freedman, Employment
Status, Tax and the Gig Economy -Improving the Fit or Making the Break, 31 King's Law Journal 2, pp. 194-214 (2020).
286, who, based on the "fluidity of the fixed base concept", maintains that this concept "was conceived as being operative within relative narrow perimeters". In the same vein, see also Michaux
- See Huston
See Huston, supra n. 160, at p. 286, who, based on the "fluidity of the fixed base concept", maintains that this concept "was conceived as being operative
within relative narrow perimeters". In the same vein, see also Michaux, supra n. 153, at p. 71; Han, supra n. 143, at p. 216.
who, as a possible "physically remote service", makes the case of a surgeon exerting tele-medicine that is entitled to use, on a remote basis and whenever he desires, robotic equipment for surgery treatment on a patient
- M S See
- Kirsch
See M.S. Kirsch, Tax Treaties and the Taxation of Services in the Absence of Physical Presence, 41 Brooklyn Journal of International Law 1134, p. 1146
(2016), who, as a possible "physically remote service", makes the case of a surgeon exerting tele-medicine that is entitled to use, on a remote basis and
whenever he desires, robotic equipment for surgery treatment on a patient located in a country other than the one where the physician is a resident.
Kluwer Law International 2015), who considers that "as far as the employee uses certain space or rooms only for non-job-related purposes, these parts of her private dwelling will never constitute
- See E Reimer
- Permanent Establishment
See E. Reimer, Permanent Establishment, in Klaus Vogel on Tax Conventions para. 128 (4th ed., E. Reimer & A. Rust eds., Kluwer Law International 2015),
who considers that "as far as the employee uses certain space or rooms only for non-job-related purposes, these parts of her private dwelling will never
constitute, or belong to, a PE of the employer".
18, second sentence OECD Model
- Para
Para. 18, second sentence OECD Model: Commentary on Article 5 (2017).
How Fixed Is a Permanent Establishment p
- See J Schaffner
See J. Schaffner, How Fixed Is a Permanent Establishment p. 139 (Kluwer International Law 2013), who considers that "[t]he OECD's explanations are,
however … too vague, and do not provide sufficient added value and precise guidelines".
Article 5: Permanent Establishment -Global Tax Treaty Commentaries sec. 3.1.2., Global Topics IBFD
- Para
Para. 18, second sentence OECD Model: Commentary on Article 5 (2017). F.A. Garćıa Prats, Article 5: Permanent Establishment -Global Tax Treaty
Commentaries sec. 3.1.2., Global Topics IBFD, summarizes this criterion as the fact that there must be "the actual use of the home office" by the employer.
See also para. 19, first sentence OECD Model: Commentary on Article 5 (2017), which refers to "a consultant who is present for an extended period in a given State
- Para
Para. 18, last sentence OECD Model: Commentary on Article 5 (2017). See also para. 19, first sentence OECD Model: Commentary on Article 5 (2017),
which refers to "a consultant who is present for an extended period in a given State" [emphasis added].
- Para
Para. 18, last sentence OECD Model: Commentary on Article 5 (2017).
at para. 12, first sentence
- Id
Id., at para. 12, first sentence.
See also CFE Fiscal Committee, Opinion Statement of the CFE on Proposed Changes to the Commentary on Art. 5 of the OECD Model Tax Convention (Permanent Establishment): Submitted to the OECD
- Skaar
Skaar, supra n. 143, at p. 293. See also CFE Fiscal Committee, Opinion Statement of the CFE on Proposed Changes to the Commentary on Art. 5 of the
OECD Model Tax Convention (Permanent Establishment): Submitted to the OECD in February 2012, 52 Eur. Taxn. 5, sec. 4 (2012), Journal Articles &
Opinion Pieces IBFD, submitting that "the concept 'at the disposal of the enterprise' is linked to the place where the activities should be carried on, rather than
to the place (i.e., cross-frontier worker's home) where the same activities are actually performed" [emphases in the original].
- Para
Para. 19, first sentence OECD Model: Commentary on Article 5 (2017).
AT: Ministry of Finance
AT: Ministry of Finance, 6 Nov. 2017, Ruling EAS 3392.
guidance is relevant only to circumstances arising during the COVID-19 pandemic when public health measures are in effect". See also A. Báez Moreno, Unnecessary and Yet Harmful: Some Critical Remarks to the OECD Note on the Impact of the COVID-19 Crisis on Tax Treaties, 48 Intertax 8&9
- Oecd See
See OECD (2021), supra n. 234, at p. 1, stating that "[t]he guidance is relevant only to circumstances arising during the COVID-19 pandemic when public
health measures are in effect". See also A. Báez Moreno, Unnecessary and Yet Harmful: Some Critical Remarks to the OECD Note on the Impact of the
COVID-19 Crisis on Tax Treaties, 48 Intertax 8&9, pp. 817-818 (2020), who points out that "[a]ny decision on the existence of a PE that depends on the
requirement that it be 'at the disposal' of the employer is always going to be problematic considering that neither the requirement is contained in the literal
wording of Article 5(1) of the model nor has the approach to it even been uniform in the comments".
14), noting that "a place must have a certain degree of permanency and be at the disposal of an enterprise in order for that place to be considered a fixed place of business through which the business of that enterprise is wholly or partly carried on
- Oecd See
See OECD (2021), supra n. 234, at p. 7 (para. 14), noting that "a place must have a certain degree of permanency and be at the disposal of an enterprise in
order for that place to be considered a fixed place of business through which the business of that enterprise is wholly or partly carried on".
2003), considering that at-home research, writing, exam development and lesson preparation activities of an US university professor are merely ancillary to
- Niesten
Niesten, supra n. 133, at p. 132. Along these lines, with regard to intra-state US income taxation, see US: NY Court of Appeal, 24 Nov. 2003, Zelinsky v. Tax
Appeals Tribunal, 801 N.E.2d 840, 843 (N.Y. 2003), considering that at-home research, writing, exam development and lesson preparation activities of an US
university professor are merely ancillary to his main teaching activity done at the university's location.
293, who notes that "the indirect influence over the home of the employee is less evident in the case where support functions are performed, such as payroll-related paperwork, time sheets, some kind of reporting back to the employer on certain finding and forwarding orders
- See Skaar
See Skaar, supra n. 143, at p. 293, who notes that "the indirect influence over the home of the employee is less evident in the case where support functions
are performed, such as payroll-related paperwork, time sheets, some kind of reporting back to the employer on certain finding and forwarding orders".
And Yet It Moves: Taxation and Labor Mobility in the 21st Century in Taxation and Migration pp
- R S Avi-Yonah
R.S. Avi-Yonah, And Yet It Moves: Taxation and Labor Mobility in the 21st Century in Taxation and Migration pp. 45-56 (R.S. Avi-Yonah & J. Slemrod eds,
Kluwer Law International 2015).
Countries' immigration policies could also entail different requisites for citizenship acquisition by inward expatriates, including citizenship-by-investment (CIP) programme. See G. Beretta, Citizenship and Tax, 11
Countries' immigration policies could also entail different requisites for citizenship acquisition by inward expatriates, including citizenship-by-investment (CIP)
programme. See G. Beretta, Citizenship and Tax, 11 World Tax J. 2, pp. 227-260 (2019), Journal Articles & Opinion Pieces IBFD.
Although teleologically acceptable as a proposal, as Pistone also acknowledges, the definition of "mobile worker" appears quite problematic, especially considering a large-scale "work-from-anywhere
- Pistone
Pistone, supra n. 105, at sec. 3.3.2.4. Indeed, some tax treaties already extend this provision to railway and road transportation workers (see, e.g., art.
15(3) Belg.-Lux. Income and Capital Tax Treaty (17 Sept. 1970), Treaties & Models IBFD). Although teleologically acceptable as a proposal, as Pistone also
acknowledges, the definition of "mobile worker" appears quite problematic, especially considering a large-scale "work-from-anywhere" scenario in which
potentially a high number of workers can move across different countries.