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The impact of work-from-anywhere policies

Author: Adrian Henderson and Lily Wilding

Published: 29 Jul 2021

The impact of work-from-anywhere policies article image

What effect does a globally mobile workforce have on transfer pricing arrangements? Adrian Henderson and Lily Wilding outline some of the implications and the key questions to consider.

What is ‘working from anywhere’?

The home-working revolution driven by COVID-19 is increasingly likely to result in a ‘new normal’ for employee working patterns. With fewer people wishing to be office-based five days a week, ‘hybrid’ (part-home, part-office) or ‘work-from-anywhere’ (WFA) models are being considered by a lot of firms. 

As more companies implement these policies, flexible working models are likely to become embedded in many sectors.

WFA policies are particularly interesting from a tax perspective as they allow employees to work far away from the employer’s business activities. In a recent survey of 611 UK mid-market businesses (June 2021), Grant Thornton found that 69% of respondents expect more of their employees, both existing and new hires, will want to work remotely from outside the UK than before coronavirus. This means that employees could be located in different countries to where, historically, their office would have been. They could also base themselves in multiple locations, spending parts of the year in different countries.

These scenarios could lead to many tax considerations that are yet to be fully understood. This article identifies some of the transfer pricing impacts of a work-from-anywhere policy and sets out the questions companies will need to consider.

Functions, assets and risks

The economic principles underpinning transfer pricing focus on functions, assets and risks. The performance of functions, the creation of assets and the management of risks are largely driven by employee actions. The physical location of employees is of considerable importance when considering where value is added and profit is made.

Substantial time and resources are often focused by tax authorities on determining employee activities to identify if the transfer pricing policies correctly assign profit to a country in order for it to be taxed. Consequently, increasing the opportunity for key employees to be in different locations can create some complex transfer pricing issues.


The ordinary working location of key employees is one of the main factors in determining where residual profit within an organisation resides. For example, the performance of, and exercise of control over, the development, enhancement, maintenance, protection and exploitation of intangibles (DEMPE functions) are largely determined by the location of the individuals undertaking these activities. Where employees performing DEMPE functions are spread over multiple countries, a clear plan is required to ensure the transfer pricing policies reflect that geographical footprint.

This in principle sounds achievable but, with more mobile employees, there is a risk of a continually evolving mix of countries increasing the complexity in determining where the IP is being created.

Significant people functions (SPF)

More mobile employees can give rise to potential issues regarding the creation of permanent establishments, which in turn leads to transfer pricing issues regarding how profits are attributed. The Organisation for Economic Co-operation and Development’s (OECD’s) 2010 Report on the Attribution of Profits to Permanent Establishments states that assets and risks should be attributed to a head office in line with the location of SPFs, thereby reiterating the idea that profits should be allocated where the key individuals within a group are creating and adding value.

The OECD’s guidance provides many examples, but these consider static point-in-time situations and do not envisage the more dynamic arrangements that could be created by WFA policies.

Finding the right person for the job

A WFA policy could also heighten the current issue faced by numerous multinationals regarding succession planning. With the potential pool for senior employees becoming more global, there is a clear risk that the right person for the job from a commercial perspective could be located in any country worldwide.

As commercial drivers often trump tax considerations, transfer pricing policy and implementation will need to be flexible enough to accommodate a potentially evolving number and variety of key employee locations.

Order to the chaos

The current policy for a lot of multinationals with SPFs / DEMPE functions split across multiple territories is generally to:

  1. have a central location that supervises and controls a network of group companies providing services on a cost-plus basis with a suitably high mark-up; or
  2. have a profit split arrangement in place to reward the participating entities.

Both of these approaches could potentially be more complex under a mature WFA policy.

Under the first scenario, there would be the practical impact of constantly updating the intercompany flows as key employees relocate; but the larger issue is if the central company has a reducing number of key people. This loss of substance could potentially increase the risk of other tax authorities reattributing where key value is being driven from (and taxed).

The second scenario is going to be complicated by the ever-changing mix of locations that will require the profit split arrangement to evolve. More of an issue in this scenario will be identifying what activities drive profit in each location. This seems open to different interpretation by tax authorities, leading to potential disagreements and tax disputes.

The key point to realise here is how many people will actually change country when they opt into the WFA policy. In most cases, it is likely this will be a small number of individuals and good documentation and potential advance agreements with tax authorities should act as suitable ‘next steps’ to help mitigate the risks.

Global tax reform

On 5 June 2021, the G7 Finance Ministers agreed to back a historic international agreement on global tax reform that means that the world’s largest multinational companies pay tax in the countries in which they operate. This was followed on 1 July by 130 countries and jurisdictions from the OECD’s inclusive framework announcing their support.

These agreements to progress the Pillar I and Pillar II proposals adds an interesting angle to the work-from-anywhere discussion. The commitment to a 15% global minimum tax rate shifts the economic incentives of using tax havens.

Under a WFA policy, the key risk is the erosion of substance where the key value drivers reside without an update to the group’s transfer pricing policies. The announcements therefore potentially create an incentive to relocate corporate headquarters away from tax havens to the location of the key entrepreneurial activity for the group. This could provide greater substance and help counter the impact of the geographically spread SPFs and DEMPE functions. 

Questions to consider

Post-COVID-19 working patterns for employees are evidently very unclear. Similarly, the practical impacts on transfer pricing arrangements from a work-from-anywhere policy are equally opaque but will be intriguing to see evolve.

We therefore leave you with some questions to consider:

  • Do your models have the flexibility to allow for a more mobile workforce in the future?
  • How do you maintain suitable documentation to support an evolving landscape of employee locations?
  • How in practice do you determine who is making key decisions, where they are located and when they are made?
  • Do you need to limit the number of countries that employees can work from anywhere in?
  • Do you need to have a ‘floor’ on how many key employees are located in a primary country to maintain the current transfer pricing policy?
  • Does the international commitment on global minimum tax offer an opportunity to move corporate headquarters to the markets with the key IP-generating activities?

About the author

Adrian Henderson, Associate Director, and Lily Wilding, Tax Associate, Grant Thornton UK LLP