When does doing a little work on vacation turn into a stay that piques the interest of local tax authorities? And does a UK company, for example, face tax complications abroad if they have staff and key decision makers are dotted across Europe working remotely?
National tax authorities and the Organization for Economic Cooperation & Development are grappling with those questions as the remote-working revolution blurs the lines between work, residency and time off.
The result could be tighter and clearer rules on how long people can work abroad before falling into another country’s tax net. It’s also opening questions about social security and pensions payments for staff that keep a home in a different jurisdiction from where they are employed.
The OECD plans to finish scoping out whether it needs to tweak global tax rules to cover “workcations” and cross-border remote employment by the end of 2023, according to one of its senior tax officials.
The pandemic and rise of Zoom conference calls clouded the distinction between work and holiday and created a new generation of “digital nomads” that earn income in one place while physically basing themselves in another. That has confused traditional definitions of where people and companies should be taxed on earned income. The distinctions are important because falling afoul of the rules means you could pay tax in two places at once or be subject to a fine.
“Countries recognize that there’s an issue and that we need to make sure that the rules are up to date with the reality of the modern economy,” David Bradbury, deputy director of the OECD Center for Tax Policy and Administration, said in an interview. “We see it as an emerging set of challenges, but we think it’s fair to say that these challenges are only going to intensify.”