Law360 Quotes Elizabeth Stevens on Employee Mobility

The administrative costs for a company or individual triggering a taxable presence, or permanent establishment, in a jurisdiction shouldn't exceed the profit allocable to the entity, transfer pricing specialists said Friday.

Advisers and a U.S. Treasury Department official said the issue can arise in what one panelist called a "micro PE" — when a single remote worker in a country spends enough time there to create a permanent establishment. Tripping the threshold for a taxable presence in these cases causes compliance obligations out of proportion with the amount of profit the entity generates, they told those attending the American Bar Association tax section's May meeting in Washington, D.C.

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Panel moderator Elizabeth Stevens of Caplin & Drysdale noted that the updated guidance confirmed that cost savings from an employee working remotely should not be treated as a "commercial reason" for purposes of the permanent establishment determination. But, she asked Bello, if a taxable presence were found to exist, is there a way to consider those cost savings — such as not paying for office space or a desk — in attributing the amount of profit generated?

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