Background
Digital Science is a remote-first business with a limited number of fixed places of business, defined by where we have a legal entity. This culture allows us to attract a diversity of individuals and skills that are not limited to narrow geographic locations.
Our default position is to employ people through one of the DS legal entities to work within the country of that entity - the UK, USA, Germany, Romania, Spain, Australia and the Netherlands.
In rare exceptional cases we may consider to engage contingent workers and each case will require Management Board sign-off. For the purpose of this policy, contingent workers refers to people who work for Digital Science on a contractual basis rather than being an employee. The assessment for those exceptional cases is outlined below.
Purpose
This policy outlines Digital Science's commitment to ensuring compliance with tax and social security regulations across all workforce engagements globally. It sets guidelines for managing employees, contractors, and other workers to mitigate risks and uphold legal obligations, including risks related to Permanent Establishment (PE) and Fixed Establishment (FE) in jurisdictions where remote work occurs as well as payroll and employment requirements.
There are some very important considerations that must be reviewed before we can engage with people to work with us who are not direct employees.
Restricted Countries
These are specific countries where Digital Science does not permit any work engagements, even temporary ones, due to high legal, tax, or operational risks. It is not possible to have people working for DS in any country on this list, even on a temporary basis.
Immigration/ Right to Work
Anyone working with DS must demonstrate that they have the legal right to work for DS in the country where the work will be performed. Work must only be carried out in the identified country.
Permanent Establishment
This is a “fictitious taxable presence of a business in another country” (in countries where Digital Science does not have a legal entity) that triggers corporate tax liability, reporting and tax compliance obligations for Digital Science in that country. Even one person in a country can trigger that.
As background, there are a number of factors that must be considered in determining whether a permanent establishment has been created, most notably:
Fixed place of business - a fixed place of business is likely to exist where a home office is used by a contingent worker, there is no alternative provided and if the company reimburses for use of the office space. Other indicators that the home office is considered 'at the disposal' of the company included business cards using the address of the home worker.
Preparatory/ auxiliary activities - In determining whether an activity is preparatory/ auxiliary (i.e. so remote from the realisation of profits) the decisive criterion is whether the activity of the fixed place of business forms an essential and significant part of the activity of the enterprise as a whole.
Examples of types of activity that may be considered preparatory/auxiliary in the OECD commentary focus on manufacturing/ storage/ display/ advertising goods/ collection of information.
In order for activities to be classified as “preparatory or auxiliary” an activity must meet the following criteria:
It must be remote from the actual realisation of profits, making it difficult to allocate profit to the activity
It must not constitute an essential or significant component of the enterprise’s overall business operations
The key principles to consider for whether an activity is preparatory are as follows:
Generally conducted prior to another activity
Often carried on for a relatively short period of time
An auxiliary activity is one that might support the main business of the enterprise, but not where that support is an "essential and significant" part of the main activity of the enterprise.
In order to assess whether activity is preparatory or auxiliary, the revenue generating activity of the enterprise should first be considered. For example, if the employing entity generates revenue from other group members for providing finance/ HR/ other support functions, this will not be auxiliary activity if an individual is engaged in support services from their home office and it is considered at the disposal of the enterprise.
The OECD commentary states the following activities cannot be of a preparatory or auxiliary nature:
A fixed place of business which renders services not only to its enterprise but also directly to other enterprises, for example to other companies within the group.
A fixed place of business whose general purpose is one which is identical to the general purpose of the whole enterprise does not exercise a preparatory or auxiliary activity.
A fixed place of business, whose function is to manage the enterprise, even if it only covers a certain area of the operations of the concern, constitutes an essential part of the business operations of the enterprise.
The position is very fact specific and local interpretation of the treaty should also be considered in determining if an activity is considered preparatory or auxiliary.
For support services, even if it were possible to argue that the functions performed are not a “significant” part of the business (in quantitative terms), if it is a function that the business could not live without, it will still be “essential”, and, if so, it is hard to see how it could be said to be “non-significant".
Contract duration - Contingent worker engagements under 6 months with no business-critical authority are considered lower risk.
Independent contractors - To reduce the risks associated with engaging contractors they should ideally not work exclusively for Digital Science and have other engagements with other business clients.
It is also important to review whether the country follows the relevant OECD Model Tax Convention, if there is a double-tax treaty in place with the employing entity jurisdiction and the number of workers located in the country.
Deemed Employment
This occurs when a worker, despite being classified as a contractor, is considered an employee by local tax authorities due to the nature of the working relationship, leading to employer payroll tax and social security obligations. Longer contractual engagements give greater risk.
Employer of Record
An Employer of Record (EOR) is a third-party organization that legally employs workers on behalf of a company. While the company directs the day-to-day work, the EOR handles legal employment responsibilities such as payroll, benefits, tax compliance, employment contracts, and adherence to local labor laws.
This arrangement allows businesses to engage talent in countries where they do not have a legal entity, without taking on the administrative and legal complexities of international employment or establishing a local subsidiary.
This model helps ensure compliance with local employment regulations while giving the business flexibility to access a broader talent pool and operate efficiently across borders. However, it is important to note that using an Employer of Record (EOR) does not eliminate the PE risk as DS will still be considered the “economic employer”. Digital Science will also be responsible for complying with local employment legislation.
Risk Assessment
There is a level of risk with engaging any contingent workers (EoR and contractors) in other countries and a robust risk assessment should be carried out on a case-by-case basis prior to any engagement. This assessment should include a cost-benefit review and consideration of materiality & enforcement reality.
“High Risk” - should not proceed. Consider entity creation if business essential.
“Medium Risk” - will require review by an external specialist in the country where the worker will be based to mitigate the potential PE risk/ identify if there is an issue based on local rules.
“Low Risk” - does not mean that there is no risk of PE but that there is a lower risk.
Governance Controls
All contingent work roles and risk assessment must be signed off by the Management Board.
Regular reviews of contingent work arrangements are essential to ensure compliance with PE guidelines. This involves maintaining detailed records of the locations and activities of contingent workers to monitor and manage PE risks effectively.
Training should be provided to employees and managers on the implications of PE and the importance of adhering to company policies. This training helps everyone understand the potential tax implications and the necessary guidelines to prevent creating a PE inadvertently
Personal Requests for Relocation
The business will consider supporting requests from employees to move to another country where there is a DS legal entity, subject to meeting the criteria defined in the Mobility Policy. Factors such as cost and operational impact will be considered. Transfers should be for a minimum of 12 months.
Requests to relocate to a country with no DS entity must follow the risk assessment above.
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