The COVID-19 crisis may raise concerns about a potential change in the “place of effective management” of a company as a result of a relocation, or inability to travel, of chief executive officers or other senior executives. Such change may impact the company’s residence status under the relevant domestic laws and also affect the country where a company is regarded as a resident for tax treaty purposes. In addition, it may impact the application of anti-abuse rules and beneficial ownership. Below we deal with the OECD analysis as well as the perspective of our L&L home markets – Belgium, Luxembourg, Netherlands and Switzerland – on corporate tax residence and substance.

Overview of COVID-19 tax emergency measures

See here for an overview of the most important announced COVID-19 tax emergency measures adopted by the European Commission as well as within our home countries Luxembourg, Belgium, Switzerland and the Netherlands. 


The OECD is of the view that it is unlikely that the COVID-19 situation will create any changes to an entity’s residence status under a tax treaty. The question arises in particular due to the existing travel bans that may temporarily change the location of the chief executive offers and other senior executives of companies. According to the OECD, such changes associated to the COVID-19 crisis, constitute extraordinary and temporary circumstances that should not trigger a change of a company’s residence for tax purposes. This should be the case even if a company becomes dual residence due to those circumstances, case in which, the application of the tax treaty tie-breaker rule – either the one provided in the pre-2017 OECD Model or the 2017 OECD Model – should in principle avoid a change of residency.

In fact and if a tax treaty provides for the 2017 OECD Model tie-breaker rule, the dual residence conflict should be solved by the competent authorities on a case-by-case basis by mutual agreement. For that purpose, competent authorities should take into account all relevant facts and circumstances over the determination period. In particular, paragraph 24.1 of the OECD Commentary on Article 4 refers to the range of factors that the competent authorities are expected to take into account which include: where the meetings of the company’s board of directors or equivalent body are usually held; where the chief executive officer and other senior executives usually carry on their activities; where the senior day-to-day management of the company is carried on; where the person’s headquarters are located; etc. It is also possible for competent authorities, based on Article 25(3), to agree to more general frameworks for such determinations, for example where particular fact patterns are present.

In situations where the tax treaty provides for the pre-2017 OECD Model tie-breaker rule, the sole criterion to solve the dual residence conflict will be the place of effective management. Paragraph 24 of the Commentary on Article 4 (of the 2014 OECD Model), states that the place of effective management is the place where key management and commercial decisions that are necessary for the conduct of the entity’s business as a whole are in substance made. All relevant facts and circumstances must be examined to determine the place of effective management. Paragraph 149 of the Commentary on Article 29 of the 2017 OECD Model explains that the concept of “place of effective management” was interpreted by some States as being ordinarily the place where the most senior person or group of persons (for example a board of directors) made the key management and commercial decisions necessary for the conduct of the company’s business.
Also in this case, all relevant facts and circumstances should be examined to determine the “usual” and “ordinary” place of effective management, and not only those that refer to exceptional and temporary circumstances such as the ones surrounding the COVID-19 crisis.

Unfortunately, the OECD guidance only relates to concerns about the residency of a company. It does not include any guidance with respect to the effect of the COVID-19 crisis on other treaty provisions, such as beneficial ownership or the application of general anti-abuse rules. Even though it can be expected that a company’s residence may remain unaffected by the travel restrictions caused by the COVID-19 crisis, the reduction of relevant corporate and operational substance in a company may raise concerns as to whether the tax authorities of the State of source may consider that such company is not the beneficial owner of the income it receives during that period .In addition, there may be concerns about whether such income receiving company is considered artificial or abusive, due to its – temporarily – reduced substance. It would have been helpful if the OECD guidance would also have covered these issues. Hopefully, the OECD will provide further guidance in this respect.

Corporate Tax Residence

A company that is tax resident in Belgium is taxed on its worldwide income in Belgium and is entitled to invoke the double tax treaties concluded by Belgium.

A company is a Belgian resident if it has its principal establishment or its seat of management or administration in Belgium. These terms are synonyms. If the statutory seat is established in Belgium, the company is presumed to have its principal establishment in Belgium as well. This presumption is refutable, unless the company does not have a tax residence according to the domestic law of another State and, under the terms of a double tax treaty concluded with a third State, is not considered to be resident for tax purposes outside that State.

Determining the principal establishment requires an assessment of all relevant factual circumstances. The principal establishment is the place from where the company is administered and controlled, i.e. the place where the key management decisions are taken. Elements that are generally taken into account in this respect include the place where the board of directors meets, where the company’s management has its offices, where the company’s accounts and archives are kept, where the general shareholders’ meetings are held, where the company has its bank accounts, where the directors reside, etc. The weight given to these various indications also depends on the type of activity and specific facts and circumstances. Especially for holding and finance companies quite some emphasis is generally placed on the location of the general shareholders’ meeting and the board meetings if the most important decisions are actually taken during these meetings.

The COVID-19 measures taken by the Belgian government have, however, an impact on the normal functioning of the board and shareholders’ meetings as it hinders physical meetings of the board or shareholders. Except for some limitations, the current Belgian Code for Companies and Associations allows for decision making by the board via written resolutions in both the NV/SA and the BV/SRL and the possibility of conference and video calls is generally accepted by a majority of legal scholars. If certain conditions are met, similar flexibilities exist for shareholder’s meetings. A Royal Decree of 9 April 2020 has further enhanced flexibility to organise board and shareholders’ meetings during the corona period (for more information on the impact of the coronavirus on the functioning of board and shareholder’s meetings in Belgium see here).

Depending on the facts of each specific case, some of these flexibilities may nonetheless raise corporate residence issues for tax purposes. It is not entirely excluded that non-Belgian tax authorities would deny double tax treaty benefits to companies making use of these flexibilities by challenging their Belgian tax residence status or that non-Belgian tax authorities would argue that a Belgian company has a tax residence equally on their territory due to a board member’s residence in that country who is now taking important decisions from his/her home office. If foreign companies apply similar flexibilities, the question also arises whether the Belgian tax authorities could argue that the Belgian board members of these non-Belgian companies create a corporate tax residence in Belgium.

Although one could argue that the exceptional and temporary travel restrictions should not jeopardize a company’s tax residence (in line with the recent OECD guidance on this subject), it is at present unclear what the position of the Belgian tax authorities is in this respect. The possible impact of these flexibilities should, therefore, still be assessed on a case-by-case basis and the possibility to provide a power of attorney to Belgian resident directors for board meetings and/or to postpone the annual shareholders’ meeting with 10 weeks (as foreseen in the above mentioned Royal Decree) are options that might be worthwhile to consider in certain circumstances.


Withholding tax should in principle be withheld by a Belgian resident taxpayer upon attribution or payment of interest, royalties or dividends at a rate of 30%. However, various exemptions (or reductions) apply by virtue of Belgian domestic law, tax treaties or an EU Directive. If an exemption or reduction is based on a double tax treaty, the question arises – as discussed above - whether Belgium could challenge the residence and thus the treaty entitlement of the non-Belgian recipient. If an exemption is based on a Directive, the withholding tax exemption may be jeopardized by a specific Belgian anti-abuse provision (as provided for by the Parent-Subsidiary Directive and transposed into Belgian law) or a general anti-abuse provision. In order to avoid that the Belgian tax authorities can successfully invoke anti-abuse provisions and deny a withholding tax exemption, an adequate level of substance at the level of the recipient is in most situations a necessity. The appropriate level of substance remains highly dependent on the type of activities and specific facts and circumstances. Various criteria are taken into account to assess whether the recipient has sufficient substance locally, including for example holding (regular) board meetings and general shareholders’ meetings physically in the recipient's country of residence. It is at present not clear whether the Belgian tax authorities would take a pragmatic approach in these times when assessing the foreign recipients’ substance for withholding tax purposes.

The question whether foreign tax authorities could rely on anti-abuse provisions to deny the withholding tax exemption on dividends distributed to Belgian resident companies that make use of the above mentioned corporate governance flexibilities depends on the position taken by the source states. From a Belgian perspective, the Belgian tax authorities can deny the participation exemption in the hands of a Belgian resident company that receives a dividend if the special anti-abuse provision as provided for by the Parent-Subsidiary Directive and transposed into Belgian law can be invoked. In order to avoid the application of this anti-abuse provision, the assessment of both the actual substance of the Belgian resident company and the commercial reasons underlying the structure are generally crucial. Since similar concerns arise as described above, reference can be made to the Belgian corporate tax residence considerations.

Corporate Tax Residence

From a Luxembourg tax perspective, companies qualify as resident Luxembourg corporate income taxpayers provided they have their statutory seat or central administration (which is the place of effective management) in Luxembourg. Furthermore, in case of dual residency, according to the tie-breaker rule included in Luxembourg’s tax treaties, the State of residence for tax purposes is determined by reference to the State in which the company’s place of effective management lies. Therefore, the place of central administration is a leading criterion in determining the tax residence of a Luxembourg company.

The level of substance of a Luxembourg company comes here in play because it gives an indication at which location which actual activities are carried out by whom. Except in the context of Luxembourg companies involved in intra-group financing activities, substance requirements for Luxembourg companies are not laid down in any law or regulation. While there is no decisive factor in Luxembourg determining in itself where the management of a company is located, and while the place of central administration and control is wholly a question of fact, it is generally held that the effective management is located at the place where key management and commercial decisions are made. This means that important decisions should be prepared in Luxembourg and made during physical board meetings held in Luxembourg.

The COVID-19 measures complicate the organization of physical board meetings at the company's registered office, notably for non-resident board members due to strict travel restrictions imposed by Luxembourg. Furthermore, the articles of association of Luxembourg companies do not always provide for the possibility of holding virtual board and shareholder meetings. Therefore, the Grand Ducal decree dated March 20th 2020, which introduces a number of emergency measures in order to mitigate the immediate effects of the COVID-19 crisis and to ensure business continuity, allows Luxembourg companies to hold their shareholders and board meetings (including the annual general meeting) without any participant attending in person. Accordingly, shareholders meetings and board meetings can be held by video conference or other means (by voting remotely in writing or by means of a proxy designated by the company for shareholders meetings and by circular resolutions for board meetings) even where these methods have not been provided for in the company’s articles of association (for more information on the impact of the coronavirus on the functioning of board and shareholder’s meetings in Luxembourg see here). These flexibilities may however weaken the substance of Luxembourg companies and raise corporate residence issues, notably from a source country perspective. From a Luxembourg perspective, while no official position has been adopted by the tax authorities, arguments can be made that, - in line with the OECD analysis – the current exceptional circumstances should not lead to a change in a company’s tax residence.


The substance of a Luxembourg company is not only a Luxembourg domestic issue but it is also (predominantly) driven by foreign tax jurisdiction requirements. In a worst case scenario, foreign tax authorities may argue that the place of effective management of the Luxembourg company is located in their State in case the company’s directors are resident therein. Furthermore, foreign tax authorities could deny that a Luxembourg recipient company is considered the beneficial owner, due to the – temporarily – reduced substance, or they could rely on anti-abuse rules to deny withholding tax exemption on dividends, interest and royalty payments provided for under EU Directives or double tax treaties to Luxembourg recipient companies that make use of the COVID-19 corporate governance flexibilities.

In the absence of any guidance from the Luxembourg tax authorities on the COVID-19 corporate governance relief measures and depending on the position taken by source countries in relation to substance and the application of anti-abuse rules, these questions should be assessed on a case-by-case basis for Luxembourg companies, notably considering the composition of their board of directors, the state of residence of their directors for tax proposes and the number of board meetings that will be held remotely. In order to limit these tax risks, board meetings and shareholders meetings, should, to the extent possible be postponed and physical meetings should be organized in Luxembourg once the COVID-19 restrictions have been lifted. In case these meetings cannot be postponed, the meeting minutes should explicitly mention that the meeting has been held remotely via electronic means due to the exceptional COVID-19 measures which do not allow the organization of a physical meetings at the company's registered office.

Corporate tax residence

A tax resident entity in the Netherlands is subject to Dutch corporate income tax on its worldwide income. Additionally, such entity has in principle access to the extensive double taxation agreement network of the Netherlands. Please note that if an entity is incorporated under Dutch law, it is deemed to be tax resident in the Netherlands. This fiction as such is typically not sufficient to benefit from double taxation agreements.

For purposes of the Dutch corporate income tax, residence of an entity is determined on the basis of all relevant facts and circumstances. It follows from Dutch case law that the place of effective management of an entity is in principle decisive. Based upon the presumption that an entity is led by its statutory board, the place where board meetings are held as well as the place of residence of the board members are important elements to conclude in which jurisdiction the place of effective management is located.

In 2018 the Dutch Supreme Court decided that essential for determining the residency of entity is the place (i) where core decisions are made, (ii) where ultimate responsibility for these decisions is borne, and (iii) from which, where appropriate, instruction is given to employees. Albeit this decision dealt with a corporate tie-breaker rule under a double taxation agreement, this substantive approach should be taken into account when assessing the residency of an entity from a Dutch tax perspective.

Question to ponder on is whether the COVID-19 crisis impacts the (temporary) place of effective management of entities. Given the numerous travel restrictions, Dutch resident entities may for instance be unable to convene regular board meetings in the Netherlands. This could trigger an unintended tax residence swift outside the Netherlands (or vice versa), thus jeopardizing tax treaty entitlements, the application of various corporate income tax facilities (e.g. the Dutch fiscal unity regime) or the validity of concluded tax rulings. However, following the OECD guidance above referred, it could in turn be argued that the extraordinary and temporary circumstances surrounding the COVID-19 crisis should not result in a change of a company’s residence for tax purposes.


Next to the tax residency of an entity, substance rules play a role for a number of situations applicable to international operating businesses. Complying with the Dutch substance rules can for instance be relevant for non-resident shareholders benefitting from a Dutch dividend tax exemption or for resident entities receiving income from treaty countries, benefitting from a reduced withholding tax rate as provided for by the relevant tax treaty.

The COVID-19 crisis most likely also impacts the possibility to comply with substance requirements. It may be difficult to comply with requirements that at least half of the total number of directors and other persons with decision-making power qualifies as tax resident in the Netherlands (or abroad) and that management decisions are taken in the Netherlands (or abroad).

Unfortunately, the Dutch Ministry of Finance nor the Dutch Tax Administration provided any guidance on the tax residency concerns and on how to comply with these substance requirements during this COVID-19 crisis. Questions have been raised on this topic by the Dutch Association of Tax Advisers, which will hopefully be answered soon.

Corporate Tax Residence

From a Swiss corporate income tax perspective, a company has its tax residency in Switzerland if it either has its statutory seat or place of effective management in Switzerland. This general rule applies both for federal as well as cantonal corporate income taxes. Most Swiss tax treaties also contain the tie-breaker for residency based on the place of effective management and Switzerland will notably not implement the new tie-breaker pursuant to the MLI requiring a mutual agreement procedure to determine tax residency in case of dual residency.

Due to the alternate criterion pertaining to statutory seat or place of effective management, Switzerland does not have domestic substance requirements in order to treat a company incorporated in Switzerland as tax resident. As cantons levy taxes on a stand-alone basis, a company may however be treated resident in another canton (inter-cantonal tax residency issues). As there is no explicit legal rule on whether the seat or the place of effective management is deemed to prevail in an inter-cantonal context, Swiss tax authorities are required to apply case law of the supreme court on this aspect. In most cases – and contrary to international tax rules– the statutory seat will prevail over the place of effective management. If for instance, a company maintains operations in canton A (statutory seat) and canton B (place of effective management), its tax residency in a domestic context is deemed to be in canton A. Therefore, the mere fact that certain employees of a corporate taxpayer may not perform their activities in the canton of the statutory seat does not necessarily impact the corporate tax residency of the employer.

In an international context, Switzerland generally appears to have a slightly more nuanced approach to corporate tax residency. Whereas many European jurisdictions emphasize board meetings of a company, Swiss case law follows the approach of looking at day-to-day operations/management. Pure administrative functions as well as top-level strategic decision making is therefore not necessarily decisive. The place of effective management of a company is viewed to be where the decision and functions for the day-to-day operations are performed. Obviously, in the context of low substance entities, the board meeting will become more important.

The measures enacted in Switzerland in the context of the COVID-19 crisis notably required many businesses to request their employees to work remotely to the extent possible. At the same time, strict travel restrictions have been imposed meaning that employees may not have been in a position to maintain their travel schedule to Switzerland if living abroad. This also impacted management functions.

However, despite the lack of public guidance issued by federal or cantonal tax administrations on the impact of such measures, the above summary can help to answer most tax residency-related questions: in an inter-cantonal context it is very unlikely that a Swiss company would change its tax residency solely due to COVID-19 Measures as (i) the place of effective management does not necessarily prevail over the statutory seat in a domestic context and (ii) the splitting-up of functions across various cantons or communes will make it very hard for a tax authority to argue that the corporate tax residency of the entire company has changed to a specific location. To date, Swiss cantonal tax authorities also appear not to take tax residency solely due to COVID-19 Measures as an actual issue (similarly for the question whether remote work creates a permanent establishment, see our article here).

In an international context, due to the Swiss focus on day-to-day operations, the fact that board meetings may not be held in Switzerland should thus also not impact tax residency of a Swiss corporate taxpayer. More importantly, the Swiss federal council also temporarily allowed that votes during shareholders meetings are carried out in writing or through electronic voting – which would not have been possible under current corporate law. It is therefore difficult to see that a Swiss tax authority would argue that corporate tax residency has changed solely due to the COVID-19 Measures.


As outlined above, Switzerland does not apply substance requirements for domestic corporate taxpayers. However, Switzerland does apply certain substance requirements in order to assess treaty entitlement of foreign parent companies of a Swiss corporation for outbound dividends. Such dividends are generally subject to 35% withholding tax unless the parent entity can claim a full refund under an applicable double tax treaty.

As part of an anti-treaty-shopping rule, Switzerland only views a foreign parent entity as being entitled to treaty benefits if it avails of sufficient substance. Substance is viewed as being financial substance (consisting of an equity ratio of at least 30%), functional substance (e.g., holding of several investments as part of an actual holding function) and personal substance. The latter covers notably the existence of local directors with sufficient know-how for the functions performed in the parent entity, local board meetings as well as employees on the payroll of the parent entity. Due to COVID-19 Measures, there can be the issue that local board meeting cannot be held or that other functions are temporarily not performed in the parent jurisdiction. However, due to the temporary nature of COVID-19 Measures such issue has so far not been raised by the Swiss tax administration. Taxpayers may however always approach the Swiss tax administration in order to obtain certainty on the impact of COVID-19 Measures as the Swiss tax administration has not yet issued formal guidance on this topic.