Why Good Governance Creates Tax Certainty

On 18 June 2026, the final guidance was published. In all open cases, it replaces the parts of the 1999 guidance dealing with the concept and creation of permanent establishments.

The final version largely follows the draft, but includes several practical clarifications worth noting.

Pure and exclusive supervision of construction or assembly work does not, on its own, create a permanent establishment. For the domestic permanent establishment test, the guidance generally requires a fixed place of business to have a duration of at least six months. It also confirms that a company can generally have only one place of effective management (Ort der Geschäftsleitung).

For employees working from a home office, the domestic position remains that this does not normally create a permanent establishment for a foreign employer. Important exceptions and treaty-specific considerations remain, particularly where management functions are exercised from that location.
Some questions remain open, including the treatment of certain service-provider arrangements and when the use of third-party premises gives a company sufficient control over those premises. These issues will continue to depend on the specific facts and future case law.

For international groups operating in Germany, the practical takeaway has not changed: legal entities, management responsibilities and governance arrangements are not merely administrative formalities. How responsibilities are allocated, where decisions are taken and how management functions are exercised can have direct tax consequences. A properly constituted German entity with qualified local managing directors, a genuine registered address and clear governance documentation can reduce ambiguity and create greater certainty.

That is the structure Greenfields helps clients build and manage.