Permanent establishment of a self-employed business owner mainly working in the field service

When calculating taxable profit, expenses incurred for journeys between home and permanent establishment using a car that is used for business purposes more than 50 % of the time – and for which private use is taxed at a flat rate under the so-called 1 % rule – are deductible only up to the amount of the so-called distance lump sum applicable to employees, which is capped at EUR 4,500 per calendar year. Any excess expenditure must be added to the profit as non-deductible business expenses at a flat rate of 0.03 % of the domestic gross list price of the car per calendar month and kilometre travelled, unless the taxpayer can demonstrate that the actual expenditure was lower. Against this background, the German Federal Fiscal Court (BFH) ruled in its decision of February 5, 2026 (case no. III R 18/25) on whether the office of a person working mainly in the field service constitutes a permanent establishment, and clarified this concept following the reform of tax law on travel expenses effective from the 2014 tax assessment period.

Facts of the simplified case

Although a self-employed but commercially active business owner maintained an office and employed several staff there, he himself only visited it occasionally, as he carried out his main work primarily in the field with clients. He travelled there – without stopping off at the office – directly from his home in a company car, for which he did not keep a logbook. He calculated his profit by means of a comparison of assets, i.e. by drawing up a balance sheet. In its assessment for the disputed years 2015 to 2017, the tax office reduced the business expenses claimed for the car in accordance with the 0.03 % rule for 220 journeys between his home and the office, which was deemed to be his permanent establishment. The German Federal Fiscal Court (BFH) ultimately upheld this decision.

Decision of the BFH

The concept of a permanent establishment must be interpreted in accordance with the relevant legislation and defines a place at or from which a self-employed person provides services to clients. It presupposes a fixed, permanent business facility which the taxpayer visits not merely occasionally, but with a degree of regularity – that is, continuously and repeatedly – for the purpose of carrying out their professional activities. All these criteria were met, meaning that the office in question constituted a permanent establishment. This was also the only such establishment for the self-employed person, who worked predominantly in the field service. Neither a home office in his flat nor the clients’ offices met the criteria for a permanent establishment, as they lacked central importance to his business activities.

This also applies following the introduction of the concept of the ‘primary place of work’ in section 9 (4) of the German Income Tax Act (EStG) under the new tax rules on travel expenses, effective from the 2014 tax year. This refers to the fixed business premises of, amongst others, the employer to which the employee is permanently assigned. If the primary place of work is not specified or is not clearly defined, it must be determined on the basis of quantitative criteria: the employee is to work there every working day or, per working week, for two full working days or at least one third of their regular working hours.

As this legal definition of the primary place of work applies only in the context of income from employment and cannot be applied to the concept of a permanent establishment, the wording of section 4 (5), sentence 1, no. 6 EStG, which is decisive for the person preparing the accounts, refers only to the permanent establishment and not to the primary place of work. Nothing to the contrary follows from a systematic interpretation of the law, as the provision does not refer to the central regulation on the primary place of work, but only to the legal consequences and calculation methods applicable there. Furthermore, the principle of equal treatment requires that the tax deduction of travel expenses for employees and self-employed persons be restricted in the same way.