Holistic approach instead of case-by-case analysis: What the new BMF draft changes regarding permanent establishments
A home office in Munich, a holding company in Luxembourg managed from Germany, an IT consultant from abroad who has been working on-site at a client’s location in Stuttgart for months. What do these situations have in common? Under the new BMF draft, they could all establish a permanent establishment for tax purposes, which could have significant implications for determining where profits are taxable.
On February 13, 2026, the Federal Ministry of Finance (BMF) published a 51-page draft letter that essentially replaces the previous administrative principles dating from 1999. Once finalized, the letter is intended to apply to all pending cases, including retroactively for ongoing assessment periods.
New assessment criteria for permanent establishment audits
Until now, the elements constituting a permanent establishment (fixed place of business, fixed location and duration, and authority to direct operations) were routinely examined in isolation and one after another in tax practice. The BMF is now explicitly abandoning this approach. Instead, a holistic approach will apply in the future, meaning that the criteria interact with one another, so that a criterion that is less distinctive can be offset by another. This sounds like greater flexibility, but in practice it also means that structures previously considered unproblematic must be reevaluated.
Permanent establishment risks associated with working from home and abroad
Simply because an employee works from home does not generally constitute a permanent establishment for the employer, as the employer lacks the necessary control over the employee’s private residence. Even a lease agreement between the employee and the employer typically does not change this. However, the draft provides for important exceptions: Anyone performing managerial duties while working from home may establish a management permanent establishment there. Anyone who also regularly initiates or concludes contracts on behalf of the employer risks creating a representative permanent establishment.
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Special attention should be paid to employees who work permanently from abroad. As a guideline for cross-border activities, the BMF cites a threshold of 50 percent of total working hours. If this threshold is exceeded, there is a risk that the employee will establish a permanent establishment outside of Germany.
Using third-party premises is no guarantee
Even those who do not maintain their own premises are not automatically in the clear. Using the facilities of a business partner, client, or collaboration partner can constitute a permanent establishment, provided that the taxpayer carries out their own business activities there. A foreign IT consultant who spends months on-site at a client’s location implementing a system and uses fixed workstations there is a classic example. Even desk sharing does not necessarily rule out a permanent establishment in this case.
Holding and management structures under scrutiny
Anyone who outsources services to an external company will find that this outsourcing alone does not establish a permanent establishment on the premises of the management company. The situation is different if the same individuals serve as management bodies for both companies or if there is ongoing personal supervision of business operations on-site. A thorough review is particularly worthwhile in the case of family office structures and investment vehicles.
Anti-fragmentation: When deliberate splitting becomes a tax trap
Those who deliberately split functions across multiple companies or entities to stay below the permanent establishment threshold will face greater challenges in the future. In this regard, the German Federal Ministry of Finance explains the so-called anti-fragmentation clause of the OECD Model Tax Convention, i.e. activities of affiliated companies can be aggregated if they function as a single economic unit. For internationally active corporate groups in particular, it is worthwhile to conduct a careful review of existing structures.
Influencers and content creators regulated for the first time
For the first time, the BMF has explicitly addressed the activities of content creators and influencers: Anyone who consistently publishes audio or audiovisual content – for example, via social media – and derives commercial income from it may establish a management permanent establishment.
Take precautionary action with WINHELLER
Given its retroactive scope of application in all pending cases, the letter has significant practical implications. A structured analysis of existing holding, remote work, and agency models should therefore not be put off.
As experienced advisors in international tax law, we are happy to assist you in identifying your risks and developing tailored solutions before the finalization of the letter – which is currently only a draft – creates new legal realities.
