According to German tax law, a corporation is subject to unlimited corporation tax in Germany if it has its registered office or its place of management here. If the sole managing director of a foreign corporation is forced to work from his or her place of residence in Germany due to the Corona pandemic, this could establish unlimited tax liability in Germany. The corporation would then be faced with double taxation in Germany and in the country where the company is established. In Germany, the tax registration of a permanent establishment and the submission of a tax return with attribution of profits to this permanent establishment would be required. A double tax treaty agreed between the country where the company is established and Germany does not prevent this, but only ensures that the same tax substrate is not taxed multiple times. In addition, debates about the extent of the profit to be allocated to the permanent establishment may arise.
At an international level, however, first voices are already being heard advocating that a professional activity at the company’s headquarters which is limited or temporarily impossible due to the Corona pandemic should not be detrimental to tax residency and thus tax liability.
For example, the OECD has already expressed the view that the temporary professional activity from the place of residence should be irrelevant to the question of the existence of a taxable permanent establishment. Ireland, Great Britain and Australia also do not want to draw any tax consequences from the fact that managers of multinational companies are temporarily unable to work at the company's headquarters.
In Germany, there currently only exist efforts to avoid tax consequences for cross-border employees who temporarily work from home instead of their usual place of work (see the article on cross-border workers). We however expect that this also applies to managing directors temporarily working from home. Nevertheless, it should be ensured that the professional activities of a managing director working from home do not become entrenched, as otherwise - even without pandemic effects - the path to a permanent establishment in Germany is a short one.