Page 49 - Monaco Economy 131

CMS Monaco: Cross-border teleworking: on the frontier of tax

risk?

by Stephan Pastor & Audrey Michelot
Monaco has almost 50,000 Monegasque employees living in France or Italy. The practice of
teleworking leads to cross-border issues as employees are required to carry out their duties several
days a week from their homes in France or Italy.

The bilateral social security agreements I t i s t h e r e f o r e
signed with France and Italy facilitate n e c e s s a r y t o
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this more flexible working arrangement examine the habitual
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by eliminating the legal risks associated n a t u r e o f t h e
with social security rights between these dependent agent’s
countries. activity according
However, for Monegasque employers whose to the nature of the
employees work from their homes in France contracts and the
or Italy, the risk of having a "permanent company's activity,
establishment" abroad should not be and the role of
overlooked. each employee in a
teleworking situation
What is a permanent establishment? (frequency, duties,
As a reminder, the concept of permanent responsibilities,
establishment is used to determine the place s cop e o f
of taxation of an activity carried on by an activities, physical
enterprise of one State in another State. organisation ).
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Where a company carries on part of its © CMS Monaco For example, an
business in another country, that business may Audrey Michelot (Counsel) e mplo y e e w h o
constitute a permanent establishment if there merely promotes and
is a fixed place of business or a dependent be made between the "recurrence" and the markets the products of a company whose
agent located in that other country. "permanence" of telework. registered office is abroad without being able
This characterisation is important as it may Furthermore, an employee's home should to negotiate or conclude contracts in the name
lead to the taxation of profits generated by not be considered to be "at the employer's and on behalf of that company, does not appear
the permanent establishment in the country disposal" insofar as the employer does not to qualify as a dependent agent.
where it is located. require the use of the employee's home in Consequently, it is strongly recommended that,
The question therefore arises as to whether order to carry out his activity. prior to the implementation of teleworking, the
there is a risk that the profits generated by Besides, activities carried out from employees' position of each employee to whom teleworking
the teleworking activity will be subject to homes are in principle of an ancillary nature is proposed should be analysed.
corporation tax in the country from which the and therefore exceptional, incompatible with As a result, the employer may be able to
teleworking is carried out. the definition of a permanent establishment. regulate the tasks carried out by teleworkers
An initial answer can be obtained by referring Nevertheless, the OECD concedes that the in order to avoid any tax risk.
to the 2017 Model Tax Convention and the spread of teleworking could call this analysis
OECD recommendations . into question. In the light of the above developments, it is
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legitimate to wonder whether Monaco should
Fixed place of business The dependent agent enter into amicable tax agreements with France
A fixed place of business is a concept used To qualify as a dependent agent, the person and Italy to allow a certain number of working
in tax law to define a place where a company must carry on, under the subordination of an days to be spent outside the company's
carries out an economic activity on a stable enterprise, an activity in another country on usual place of business without incurring tax
and permanent basis that remains at its behalf of and in the name of that enterprise consequences.
disposal. and habitually commit the enterprise in law
Sovereign Order n° 10.558 of 16 May 2024 implementing
A case-by-case analysis is therefore essential to or in fact. 1 Amendment n° 1 to the General Agreement on Social Security
determine whether the office in the employee's Thus, a person who has the power to conclude between the Principality of Monaco and the Italian Republic of
home meets these criteria. contracts habitually or exclusively, or who is 12 February 1982
Cf. article on the changing world of work
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Firstly, where telework is limited to a small authorised to negotiate the essential elements 3 Article 5 of the OECD Model Tax Convention 2017 and
number of days per month or per year, the of a contract, or who has decision-making recommendations dated 21 January 2021
French judges have adopted a broad definition of «the power to
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criterion of fixity should not be considered power for the signature of a contract, may be enter into a contract», considering that it also includes the power
to commit the company to a commercial relationship - CE, 11
to have been met. A distinction needs to qualified as a dependent agent. December 2020, no. 420174, Conversant.
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