On February 13, 2026, the German Federal Ministry of Finance (Bundesfinanzministerium or BMF) released a draft of new administrative principles on the definition and creation of permanent establishments (PEs) under domestic tax law (§ 12 AO, § 13 AO) and double tax treaties (Art. 5 OECD Model). The draft represents the most significant update to Germany’s PE framework since the last amendment in 2026 and incorporates extensive BFH case law as well as the OECD’s 2025 Model Convention and Commentary.

It will partially replace the existing BMF guidance dated December 24, 1999 (as last amended on December 22, 2016).

Below is a summary of the most relevant implications:

1. A Clear Two‑Step PE Analysis: Domestic Existence, Treaty Taxing Rights

Domestic law determines whether a PE exists in principle; the treaty then determines whether and to what extent Germany may tax it. The BMF confirms a strict two‑stage examination:

1. Domestic Test: Assess whether a permanent establishment exists under § 12 AO or whether the conditions for a permanent representative (Ständiger Vertreter) are met under § 13 AO.
2. Treaty Restriction Test: Determine whether the applicable double tax treaty limits Germany’s taxing rights (including whether a treaty PE threshold is met).
   Taxpayers should perform the PE analysis not only under the domestic-law, but also under the treaty-law, ensuring an overall assessment.

2. Beyond Offices and Factories: Evolving Permanent Establishment Risks

The draft provides extensive clarification on a range of practical scenarios, with home office situations being among the most relevant given post‑pandemic work models. Its message is clear: permanent establishment risk is no longer defined primarily by formal structures, but by the practical reality of how and where business is conducted.

2.1 No “Floating Income”

As a rule, an employee’s private home office does not constitute a permanent establishment of the employer, because the employer typically lacks the required control over private premises.

However, a place-of-management PE may arise where an executive habitually carries out day-to-day management functions (Tagesgeschäft) from their home office.

2.2 A Laptop Is Not Enough: When the Device Becomes a Business Facility

The draft confirms that a “business facility/Geschäftseinrichtung” does not require a traditional office or fixed building. In principle, even digital working equipment such as a laptop may be part of the analysis. But this should not be overstated: a laptop in a backpack does not by itself create a PE.

The decisive issue remains whether the overall PE requirements are met, including:

• A sufficient link to a specific location.
• A certain degree of permanence.
• Disposal power.
• Direct service to the business.

In other words, the draft modernizes the concept of a business facility but it does not eliminate the need for a fact-based overall assessment.

3. Desk-Sharing Is Not a Safe Harbor

A PE does not require a permanently exclusive office. It may be enough that there is a reliable and recurring possibility to use a workspace. This makes the concept of disposal power especially important.

Interestingly, the draft also suggests that a dedicated locker or storage compartment may be an indication of spatial rootedness. Not because a locker automatically creates a PE, but because it may support the conclusion that the business has a sufficiently stable connection to the location.

A reliable expectation of regular access exists at least where the number of workstations is determined based on the office’s typical weekly occupancy, and a sufficient number of desks is made available to potential users on a continuing basis.

Relevant indicators include in particular:

• Contractual arrangements.
• Forecasts of regular and typical average office occupancy are based on the specific facts of the case.

Temporary peak usage periods — such as staff meetings or company anniversaries — may be disregarded in this assessment.

4. The 6-Month Trap: Intention Prevails Over Reality?

The draft sharpens the six-month test for temporal permanence of the facility. If the facility is intended from the outset to remain at a location for at least six months, temporal permanence is treated as existing from the beginning. Conversely, if a facility initially intended for short-term use in fact remains for more than six months, the temporal permanence element may be satisfied retrospectively from the date the location link was first established.

In addition, the BMF emphasizes the interaction between local permanence and temporal permanence. A strong mechanical anchoring in the ground (for example, machinery or equipment) may lead the tax authorities to assume a permanent setup even over shorter periods. Conversely, a particularly strong degree of temporal permanence — for example, where a business facility or installation remains for a long period at a specific geographic location may also influence the conclusion that there is sufficient local permanence.

5. The Anti-Fragmentation Rule: The End of Artificial Auxiliary Activities

One of the most interesting areas is the interaction between domestic PE rules and treaty law.

German domestic law does not contain the same treaty-style “negative list” for preparatory or auxiliary activities. That means these activities are not automatically excluded under domestic law.

Under applicable tax treaties, however, Article 5(4) OECD Model may still deny PE status where an activity is genuinely preparatory or auxiliary.

The draft also highlights the anti-fragmentation rule: businesses cannot simply split functions into several small activities and assume each remains exempt in isolation. Where the functions complement one another and together form a meaningful part of the core business activity, the preparatory/auxiliary exception may no longer apply.

This is particularly relevant for groups using warehousing, purchasing, support and management functions across different locations or entities.

A&M Observation and Recommendations

The full updated guidance is available here.

The BMF draft sends a clear signal: the tax authorities are preparing for the comprehensive capture of the digital working world. Concepts such as disposal power, rootedness, and day-to-day business are moving to the center of tax audits. Even a locker or the regular use of a home-office workspace for management tasks can trigger significant tax consequences..

Stakeholders may submit comments until March 13, 2026.

Given its broad practical implications, multinational enterprises should act now to review their structures, especially in areas such as home‑office arrangements, service delivery models, and cross‑border project operations. 

A&M stands ready to support with PE risk assessments, policy design, and DTT‑aligned structuring.