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Telecommuting Workers during COVID: Considerations for Businesses and their Employees



Rödl & Partner Tax Matters Vol 2020 – 13 published October, 7 2020 


At the beginning of the COVID pandemic, much of the world retreated to the safety of homes, anticipating a short-term crisis. Businesses and their employees are faced with potential tax consequences as the result of decisions made for employees’ safety. Unfortunately, governments have been slow to provide guidance to businesses and employees on how working from a different tax jurisdiction may impact tax liabilities. The purpose of this letter is to communicate guidance that has been released and provide some thoughts for consideration as the fourth quarter of 2020 approaches.


Country-to-Country Impact

A business’s international tax footprint can be impacted by the movement of employees during COVID:

  • Employees once working in Country A may now be providing their services from Country B. Does this create a tax obligation for the employer in Country B? Where does the employee have tax obligations?
  • Assume employees were sent to Country C for an 8-week construction project immediately before COVID hit. No permanent establishment (PE) was expected to be created in Country C under the tax treaty with the country in which the project was located, because of its limited duration. When COVID hit, the project was suspended for ten months. Does the delay impact whether the business has a PE in Country C?

For most businesses, the answer to these questions must be determined under a tax treaty. The OECD Secretariat has opined that exceptional and temporary employee displacement, related to working from home arrangements, or concluding of contracts from an employee’s home should not be considered to create a permanent establishment (PE) under most treaties. Correspondingly, a temporary halt to construction should not terminate a construction site PE. OECD member countries are also encouraged to provide guidance to minimize the compliance burden with respect to other matters, such as registration requirements, non-income and employment taxes, residency determinations, etc. Countries have responded or not responded in various ways, with varying types of relief for varying periods. In each case in which the location of employee or other business activity has been impacted by COVID-19, it is therefore important that the potential for local tax consequences be assessed.

With respect to the U.S., the IRS has provided limited relief to individuals, international businesses, and business travelers via FAQ’s on its website, and in Revenue Procedures 2020-20 and 2020-30. In general, with respect to persons remaining in the U.S. because of the COVID emergency, U.S. presence during any 60 day period beginning between February 1, 2020 and April 1, 2020, can be excluded for purposes of the substantial residence test, the application of a treaty to withholding on services income, and whether an individual or foreign corporation has a permanent establishment in the U.S. With respect to U.S. individuals remaining outside the U.S. because of the COVID emergency, any effected 60 days in 2020 may be excluded for purposes of determining whether a foreign branch or QBU is created, and whether filing of Forms 5471, 8858, or other foreign information returns are required. Detailed rules, definitions and filing requirements are not provided, and should be reviewed in the context of specific situations.

Impact within the U.S.

U.S. businesses without an international footprint are not immune to these issues. It is fairly common for employees to work in one state while residing in another state. An employee working from home may be considered to be providing services from a different state. Additionally, employees may be working from relatives’ homes, second homes, and retreats in third locations. In addition to implicating business income tax and payroll obligations, Nexus can potentially be created for other types of tax, such as sales tax, franchise taxes and even property tax if the employee is using business property while working from home.
For business income taxes, the issue is whether employees’ activities in another state create “Nexus”. “Nexus” is a minimum connection that provides a state with jurisdiction to tax (a concept similar to PE). As of the end of September 2020, the following states have provided relief where employees are located in the state temporarily due to COVID:


​California​New Jersey


​North Dakota
​Iowa​Rhode Island
​Massachusetts​South Carolina


Kentucky has stated it will determine nexus on a case-by-case basis. Maryland is the currently the only state that has specifically stated that nexus is not waived. It should be noted that much of the guidance was issued earlier in the year. With more than 35 states not having provided guidance, as well as the passage of time and developments in the meantime, businesses should review their state tax footprint prior to year-end to determine if new or different filings are required, and to consider the impact on their effective tax rate and level of potential exposure.

Payroll tax obligations are even less clear. If an employee is working in another state, the employer may have withholding, unemployment and other payroll tax obligations in that state. States that have provided guidance so far have tended to conform to their specific nexus exceptions, generally stating that employees temporarily working in the state due to COVID will not cause the employer to have payroll tax obligations. Illinois, for example, provides a 60-day safe harbor before payroll taxes begin to apply in Illinois. The majority of states have yet to provide guidance, presumably requiring employers to apply existing physical presence thresholds and related rules.

Employees are generally required to report all of their income to their state of residence, with a credit allowed for taxes paid to other states. Relocation may impact residence. The determination of residence can be complex, requiring a state specific analysis.

While some states have issued guidance on income tax nexus or payroll obligations, states have largely remained silent regarding sales tax nexus. Expanded sales tax nexus and increased filing as the result of the Wayfair case may minimize changes to state nexus from COVID. For some employers, however, a physical presence in additional states may now require sales tax registration, collection, and remittance.

In summary, lack of guidance by tax authorities makes an already complicated analysis less clear. As a first step, we recommend accumulating facts regarding which employees are providing services from what locations, followed by a jurisdiction-by-jurisdiction analysis of tax and compliance obligations. The analysis should be undertaken as soon as possible, both to ensure compliance at the federal and state level, as well as to ensure that reporting deadlines can be met.

Please contact your Rödl & Partner representative for additional information and assistance.


This publication contains general information and is not intended to be comprehensive or to provide legal, tax or other professional advice or services. This publication is not a substitute for such professional advice or services, and it should not be acted on or relied upon or used as a basis for any decision or action that may affect you or your business. Consult your advisor.

We have made reasonable efforts to ensure the accuracy of the information contained in this publication, however this cannot be guaranteed. Neither Rödl Langford de Kock LP nor any of its subsidiaries nor any affiliate thereof or other related entity shall have any liability to any person or entity which relies on the information contained in this publication, including incidental or consequential damages arising from errors or omissions. Any such reliance is solely at user's risk.

Any tax and/or accounting advice contained herein is based on our understanding of the facts, assumptions we have been asked to make, and on the tax laws and/or accounting principles in effect as of the date of this advice. No assurance is given that the conclusions would be the same if the facts or assumptions change, or are not as we understand them, or that the tax laws and/or accounting principles will not change subsequent to the issuance of these conclusions. In addition, we do not undertake any continuing obligation to advise on future changes in the tax laws and/or accounting principles, or of the impact on the conclusions herein.

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Copyright © October 2020 Rödl Langford de Kock LP
All rights reserved. 


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