Global families and founder-led groups increasingly run businesses from anywhere. Tax authorities, meanwhile, still care where key decisions and contracts happen. This piece explains modern PE risk—and how to design around it.
Why PE matters now. “Permanent establishment” (PE) rules decide when a foreign company becomes taxable in a country. In a world of remote boards, roaming executives, and distributed sales teams, classic tests—fixed place of business, dependent agent—are being reinterpreted. If executives repeatedly negotiate, sign, or direct core functions from a country, PE may arise even without an office sign.
The three big PE doors.
- Fixed place PE: A home office used with regularity for company business, especially by senior decision-makers, can be viewed as a fixed place depending on policy (verify latest).
- Dependent agent PE: If someone habitually concludes contracts or plays the principal role leading to contract conclusion, tax exposure follows.
- Service PE: Certain treaties set day-count thresholds for on-the-ground services; exceed them and PE appears.
Management-and-control spillover. Apart from PE, some jurisdictions tax on where “central management and control” occurs. Board meetings consistently held in one country, or shadow-directorship by residents, can shift corporate residence. Minutes and travel patterns matter.
Design patterns that work.
- Board hygiene: Schedule meetings in the company’s intended home, keep contemporaneous minutes, and avoid “rubber-stamping” decisions made elsewhere.
- Agency boundaries: Channel sales through truly independent distributors; do not grant contract-signing authority lightly.
- Day-count vigilance: Track engineers, consultants, and implementation teams; rotate presence if needed.
- Document the facts: Office leases, service contracts, and org charts that match reality beat brochures.
Common mistakes. Using a local “representative” who negotiates all key terms; signing everything on local IP addresses; or running the treasury and deal desk from a different country than claimed headquarters.
Case snapshot. A holding company claims residence in Jurisdiction A, but the CFO and COO live in Jurisdiction B, lead weekly deal calls, and approve pricing there. Local auditors in B assert PE and corporate residence. The fix: relocate decision-making, appoint resident directors in A, and ring-fence contract authority.
Checklist. Governance calendar; who can bind the company; where data rooms are accessed; VPN/IP logs; third-party independence tests.
FAQ
- Does a co-working desk create PE? Not by itself; it’s the regularity and significance of activities that count.
- If I avoid signing locally, am I safe? Not necessarily; “principal role leading to conclusion” may still trigger agent PE.
Editor’s Note: PE controversy is about facts over forms. Build the facts first; paperwork then confirms them.
Tags: Permanent Establishment, Remote Work, Governance, Global Mobility