The UK’s HMRC recently published guidance on the possibility that employees of foreign entities working temporarily in the UK might create a permanent establishments in the UK.
The guidance includes examples of foreign employees who spend blocks of time working in the UK. The question raised is whether these types of employees create a permanent establishment.
Example 1:
“Juan, who works for a foreign entity in State D, comes to Brighton on holiday and stays on to work here for a total of 40 calendar days including his holiday, using the office of a UK affiliate company as a base. He enjoys the experience so much he decides to do the same thing six months later.”
Under this arrangement, Juan’s presence would not create a fixed place of business permanent establishment because the permanence test would not be met. However, if this arrangement were to become an annual occurrence for Juan and/or his successors or colleagues, the business may have to consider whether the cumulative time spent in the UK could trigger a permanent establishment.
Example 2:
“Francine, a French national with an English partner, joins a French company on a permanent contract which permits her to spend a fixed three-month period each year working in the UK”.
Unlike the situation in Example 1, this arrangement would meet the permanence test for a fixed place of business permanent establishment because the cumulative time she is anticipated to spend in the UK over the coming few years is significant and her presence in the UK is fixed, not random or sporadic. Whether a UK permanent establishment would be created would depend on the broader facts and circumstances.
Example 3:
“Alexei, Luca and Sara all work for a foreign entity in State C. They come to the UK on holiday for the same part of the year with their families, staying at different addresses. They are all permitted to stay on an additional 30 days to work in the UK by their employer, using the office of a UK affiliate company as a base.”
Under this arrangement, the employees’ presence would not create a fixed place of business permanent establishment because, irrespective of any other conditions, the permanence test would not be met.
Example 4:
“Company T has a team of staff in its Zurich office. Over the course of nine months, six staff are permitted to spend six weeks each, in turn, at an affiliate company’s office in London working on a project.”
HMRC concludes that this scenario would meet the permanence test for a fixed place of business permanent establishment, because the changing identity of the visiting personnel doesn’t affect the continuity of Company T’s presence in the UK.
Example 5:
“Jasmine, who works for a company based in the UK, is seconded to cover six months of maternity leave for a related foreign company in State E. She does this remotely from her UK office and her home in London.”
HMRC states that this scenario will not be automatically exempt from triggering a fixed place of business permanent establishment of the related foreign company in the UK, and concludes that the facts will have to be examined as usual to determine if a permanent establishment is triggered.
Stuart Strong
BDO in United Kingdom
The guidance includes examples of foreign employees who spend blocks of time working in the UK. The question raised is whether these types of employees create a permanent establishment.
Examples
The new guidance, found in HMRC’s International Manual under INTM264435, focuses on the impact of the fixed place of business permanent establishment rules on the five scenarios included. HMRC cautions that businesses in similar situations would have to determine whether the conditions for a dependent agent permanent establishment may be met, under similar facts and circumstances.Example 1:
“Juan, who works for a foreign entity in State D, comes to Brighton on holiday and stays on to work here for a total of 40 calendar days including his holiday, using the office of a UK affiliate company as a base. He enjoys the experience so much he decides to do the same thing six months later.”
Under this arrangement, Juan’s presence would not create a fixed place of business permanent establishment because the permanence test would not be met. However, if this arrangement were to become an annual occurrence for Juan and/or his successors or colleagues, the business may have to consider whether the cumulative time spent in the UK could trigger a permanent establishment.
Example 2:
“Francine, a French national with an English partner, joins a French company on a permanent contract which permits her to spend a fixed three-month period each year working in the UK”.
Unlike the situation in Example 1, this arrangement would meet the permanence test for a fixed place of business permanent establishment because the cumulative time she is anticipated to spend in the UK over the coming few years is significant and her presence in the UK is fixed, not random or sporadic. Whether a UK permanent establishment would be created would depend on the broader facts and circumstances.
Example 3:
“Alexei, Luca and Sara all work for a foreign entity in State C. They come to the UK on holiday for the same part of the year with their families, staying at different addresses. They are all permitted to stay on an additional 30 days to work in the UK by their employer, using the office of a UK affiliate company as a base.”
Under this arrangement, the employees’ presence would not create a fixed place of business permanent establishment because, irrespective of any other conditions, the permanence test would not be met.
Example 4:
“Company T has a team of staff in its Zurich office. Over the course of nine months, six staff are permitted to spend six weeks each, in turn, at an affiliate company’s office in London working on a project.”
HMRC concludes that this scenario would meet the permanence test for a fixed place of business permanent establishment, because the changing identity of the visiting personnel doesn’t affect the continuity of Company T’s presence in the UK.
Example 5:
“Jasmine, who works for a company based in the UK, is seconded to cover six months of maternity leave for a related foreign company in State E. She does this remotely from her UK office and her home in London.”
HMRC states that this scenario will not be automatically exempt from triggering a fixed place of business permanent establishment of the related foreign company in the UK, and concludes that the facts will have to be examined as usual to determine if a permanent establishment is triggered.
Stuart Strong
BDO in United Kingdom