On 13 February 2026, Germany’s Federal Ministry of Finance (BMF) released draft revisions to its administrative guidance on permanent establishments (PEs) under domestic tax law and in the context of the OECD model tax convention. The draft—which updates guidance originally issued in 1999—reflects modern business practices (e.g., home offices, working in third-party premises, influencers, etc.) and provides expanded explanations and practical examples, including for dependent agent PEs.
The draft introduces a more structured two-stage approach to the determination of PE status:
The draft elaborates on the core elements for establishing a PE, including:
Permanent representative (AO section 13 and OECD model treaty article 5)
The draft clarifies that:
The draft guidance confirms that a home office generally does not constitute a PE because the employer typically lacks the power of disposal over an employee’s premises. However, exceptions may arise, particularly where management functions are performed or representative activities are carried out from the home office.
Influencers
In the case of influencers, at least one PE must exist where the business is effectively managed, typically the individual’s private residence or home office where decisions on content, collaboration and contracts are made.
In cross-border cases, the role of social media agencies must be examined closely. If an agency plays a significant role in concluding contracts, this could create a representative PE, potentially triggering additional taxing rights.
Once finalised, the draft guidance will provide a more comprehensive and contemporary framework for assessing PE status under both German domestic law and tax treaties. Taxpayers operating in Germany—particularly those with remote workforces, shared workspaces or digital business models—should expect greater clarity and more predictable outcomes.
Ligiane Barnsteiner
BDO in Germany
Key Elements of the Draft Guidance
The draft introduces a more structured two-stage approach to the determination of PE status:
- A domestic law analysis under sections 12 and 13 of the Fiscal Code (AO), which address PEs and permanent representatives, respectively; and
- A tax treaty analysis to determine whether an applicable tax treaty limits Germany’s taxing rights and whether a PE exists under the treaty definition.
The draft elaborates on the core elements for establishing a PE, including:
- Business premises: Broadly interpreted to include basic facilities, such as workstations, provided other criteria are fulfilled.
- Location: A physical connection to the earth's surface is required (but permanent attachment to the earth is not required).
- Permanence: Permanence is presumed to exist if the premises are used for more than six months or if they are intended to remain in one place for at least six months even if the actual duration is shorter.
- Functional connection: The premises must directly support the company’s activities, meaning that those activities must be promoted to some extent and conducted from that location.
- Power of disposal: The decisive factor for establishing a PE is that the company has the power of disposal of the business premises, although a formal right of use is not required.
Permanent representative (AO section 13 and OECD model treaty article 5)
The draft clarifies that:
- A permanent representative under domestic law must manage a business on an ongoing basis and be subject to instructions. A physical business establishment is not required.
- Under the model treaty, a representative constitutes a PE if the representative habitually concludes contracts for the business in its own name or assumes a leading role in doing so. A formal power of attorney is not strictly necessary.
The draft guidance confirms that a home office generally does not constitute a PE because the employer typically lacks the power of disposal over an employee’s premises. However, exceptions may arise, particularly where management functions are performed or representative activities are carried out from the home office.
Influencers
In the case of influencers, at least one PE must exist where the business is effectively managed, typically the individual’s private residence or home office where decisions on content, collaboration and contracts are made.
In cross-border cases, the role of social media agencies must be examined closely. If an agency plays a significant role in concluding contracts, this could create a representative PE, potentially triggering additional taxing rights.
BDO Takeaway
Once finalised, the draft guidance will provide a more comprehensive and contemporary framework for assessing PE status under both German domestic law and tax treaties. Taxpayers operating in Germany—particularly those with remote workforces, shared workspaces or digital business models—should expect greater clarity and more predictable outcomes.Ligiane Barnsteiner
BDO in Germany