Permanent Establishment Is Your Problem
Whether your activity in a country is taxable there is assessed against you, not against the provider.
Direction of the work
Whether the work is any good
Equipment and systems
Whatever the agreement did not list
YoursThe provider'sCrosses the twoNeither contract
Four matters, and no share: what any one agreement covers differs by agreement. One crosses both, and the handoff is where these arrangements fail. Everything the fee did not buy stayed where it was.
Where one buyer's exposures actually sat, after it asked somebody qualified rather than its provider
Employment obligations to the person in that country
The provider'sLands as: Carried by the provider as employer of record, which is the thing the fee buys
What you can do: Keep the evidence of filings, which is also the evidence the arrangement is what it says
Corporate tax on profits attributed to activity in that country
YoursLands as: Assessed against your company, in a country you believed you were not trading in
What you can do: Take local advice before the second hire, from an adviser who is not selling you the arrangement
Indirect tax registration triggered by local activity
YoursLands as: A registration obligation of your own, entirely separate from the employment
What you can do: Ask the question explicitly; providers are rarely asked and rarely volunteer it
A salesperson concluding contracts in the country
YoursLands as: The clearest fact pattern there is, and the role most often hired this way first
What you can do: Understand before hiring, not after, because the role is the exposure rather than the structure
Misclassification of the arrangement itself
Crosses the twoLands as: An employment assessment against the provider, and a presence question against you from the same facts
What you can do: Read whether the indemnity reaches your half at all, and assume it does not
A researcher writing code with no customer contact
Neither contractLands as: No clear bearer: low risk on most analyses, and nobody in the triangle owns the judgement
What you can do: Document the reasoning once, so a later question is answered from a file rather than from memory
Six exposures, and four of them are yours whatever the provider's brochure says. One buyer's own position after taking advice; what creates a taxable presence differs by country, by treaty and by what the person actually does.
Whether your activity in a country is taxable there is a question about your company, assessed against your company. The provider employing somebody locally does not answer it and the service agreement does not address it.
The practical lesson in “Permanent Establishment Is Your Problem” is that a third-party arrangement still leaves day-to-day management with the operating team. Used for interview reimbursement policy, consult the product information here can make time and project context easier to review, provided the purpose is disclosed, access is limited and every consequential inference receives human review.
This is the exposure buyers discover last, and it is usually discovered by somebody other than the person who bought the service.
Teams reviewing “Permanent Establishment Is Your Problem” can cross-check their approach against the ICO organisational privacy guidance. The comparison should produce written questions for the provider, adviser or internal owner instead of a copied checklist.
What the term means in practice
A taxable presence in a country where you have no entity, created by what your business actually does there rather than by what it has registered.
Where one exists, profits attributable to that activity may be taxable locally, with filing obligations attached. The mechanics vary by country and by treaty.
Why the provider does not solve it
The provider solves employment. Somebody has to be the employer, and they are, which removes the employment-side obligations entirely.
Your corporate position is a different question entirely, answered by different people, and the provider has no role in it and generally no view worth relying on.
Several providers imply otherwise in their marketing, usually by describing the employment risk and letting the reader generalise. The material is not dishonest and it is not an answer to this question.
What raises the risk
The activity matters more than the structure. A person concluding contracts, negotiating terms, or acting as a habitual agent of your business is the classic pattern.
A person doing internal work — writing code, running operations, supporting colleagues — is on most analyses a much weaker case.
The roles most often hired this way first
Sales. A first hire in a new market is frequently a salesperson, because that is how companies enter markets.
That is also the role most likely to raise the question. The coincidence is unfortunate and extremely common.
What a home office can amount to
In some analyses, a fixed place of business at the person's disposal for your business. Whether that creates presence depends on the country, the treaty and what happens there.
Nothing about this is settled by having an employer of record in place, which is the assumption most buyers make without examining it.
Scale changes it
One person doing back-office work is a different question from five people running a local operation with a manager and a customer base.
Arrangements usually grow without anybody revisiting the analysis done, if it was done, at the first hire.
Growth is also rarely planned as growth. Three separate hires over two years, each sensible on its own, is the usual route to a local operation nobody decided to build.
Who should answer the question
Your own tax advisers, with knowledge of that country, on the specific facts of what the person will do.
Not the provider, whose material on the subject is marketing, and who has an interest in the answer. Asking them is reasonable; relying on them is not.
When to ask
Before the first hire in a country where the role is customer-facing, and before the second hire in any country.
A short written opinion costs a fraction of the annual cost of the arrangement and is the only document that will matter if the question is ever asked.
Ask it as a question about the role rather than about the structure. What the person will actually do is the input that decides the answer.
Documenting the reasoning
Where the conclusion is that the risk is low, write down why:
- What the person actually does, day to day.
- What they do not do: contracts, negotiation, customer commitments.
- Who they deal with, inside and outside the company.
- Where they work, and whose premises those are.
- What advice was taken, from whom, and when.
Three years later, nobody remembers, and a file that answers the question is worth considerably more than a recollection.
Reviewing it when things change
A new role, a customer-facing hire, a local office, a person promoted to run a region. Each is a reason to look again.
Put it on the same annual review as the service agreement. It takes ten minutes to decide that nothing has changed.
Indirect tax and other registrations
Separate questions with their own answers, occasionally triggered by local activity quite independently of corporate tax.
Ask about them explicitly when taking advice. They are rarely the headline and are occasionally the obligation that actually arises.
What no structure removes
The uncertainty. These questions turn on facts, treaties and the view a particular authority takes, and reasonable advisers differ on the same set of facts.
An employer of record arrangement is not a shelter from it and was never sold as one, whatever the impression left by the marketing. The defensible position is to have asked the right people the right question at the right time and to have written down the answer, which is available to any buyer and is skipped by most of them.