Pandemic driven permanent establishment and tax residence concerns - Aviation Finance Focus

March 2021

The outbreak of COVID 19 and the accompanying cross border travel restrictions and quarantine requirements have had an unprecedented impact on the operations of business globally. Given the high level of mobility and the importance of travel in the aviation finance industry, such a change in business operations has created complicated commercial and tax challenges for many in the industry.

On 21 January 2021, the Organization for Economic Co operation and Development (“OECD”) published an update to their earlier April 2020 guidance on cross border tax issues arising from the COVID 19 pandemic. In summary, this extends previously provided guidance, given the longevity of the crisis. The latest guidance conveys the key message that exceptional and temporary changes to work location or arrangements arising directly as a result of the COVID 19 pandemic should not by themselves result in the creation of a permanent establishment (“PE”) or a change of tax resident status of a company or an individual.

However, the OECD guidance is merely a view on the interpretation of various treaty provisions which is not legally binding. Jurisdictions may adopt a different view of the relevant treaty provisions from those expressed by the OECD. In situations where tax treaties do not exist, the relevant jurisdictions’ domestic tax rules may still apply. It should therefore be clear that it is important for aviation finance industry participants to assess their circumstances and to proactively monitor and manage such tax risks.