On 19 November 2025, the Organisation for Economic Co-operation and Development (OECD) published a long-awaited update of the OECD Model Tax Convention. This is the first substantive revision since 2017.
This update aims to provide greater legal certainty and stability in international taxation and is aligned with how economic activities are currently organized in a cross-border context.
The update addresses structural changes such as cross-border remote work, extractive activities (“natural resource extraction”), transfer pricing, and the interaction between domestic legislation and treaty provisions. This article focuses on the amendments to the commentary on Article 5 of the OECD Model Tax Convention (the concept of “permanent establishment”, hereinafter “PE”).
Amendment to the commentary on Article 5: PE and remote work
Background: structural teleworking after COVID
The 2025 update clarifies when working from home (or from another non-business location) in another country may lead to a PE of a foreign employer enterprise.
When an employee regularly works from another country, this may result in the foreign enterprise becoming subject to taxation in that country and having to comply with tax and administrative obligations (for example, filing a corporate income tax return and complying with local registration and administrative requirements). The social security aspect should not be overlooked either.
The COVID-19 pandemic accelerated the trend of cross-border remote work, turning what was previously rather exceptional into a structural situation. The temporary OECD guidance provided only limited answers, leaving significant uncertainty regarding the tax implications of working remotely from another country.
The purpose of the 2025 update is to modernize and expand the existing principles on remote work, without amending the text of Article 5 of the OECD Model Tax Convention itself. The aim is to provide tax certainty on when remote work leads to a PE in another country.
The new commentary recognizes that employees increasingly work from a different state than where the employer is established. Such arrangements may also arise at the initiative of the employee (for example for personal reasons), meaning the employer is not always the initiating party.
It is also acknowledged that employees may work from locations that are not business premises of the enterprise or an associated enterprise, such as their home, a second residence or a holiday home.
Such locations are generally not accessible to other employees of the same enterprise. The employee has a certain degree of control (“disposal”) over and connection with the location.
Importantly, Article 5 of the OECD Model Tax Convention itself remains unchanged. Only the commentary has been amended, meaning that the new guidance is in principle immediately applicable to existing double tax treaties based on the model convention.
However, some countries have already indicated that they may adopt a different position or formulate reservations. It also remains to be seen what the impact will be on existing telework agreements, such as the one between Belgium and the Netherlands.
New guidance builds on core principles
A PE is described in Article 5 of the OECD Model Tax Convention and refers to the physical or economic presence of an enterprise in a country other than the country where the employer is established.
Different types of PEs are distinguished (for example, fixed place PE, dependent agent PE, construction PE, etc.).
If a PE exists for corporate income tax purposes in another country, that country obtains taxing rights over the profits attributable to that PE. In practice, this means that income and expenses must be allocated to the PE on an arm’s length basis so that they can be included in a local tax return.
The employer must then exempt the result of the PE in its own corporate income tax return to avoid double taxation.
The new commentary regarding whether a home office (or other workplace) qualifies as a PE falls within the analysis of a fixed place PE and builds on the existing principles of Article 5.
A key principle remains that the assessment of whether a home (or other workplace) constitutes a “fixed place of business” always depends on the specific facts and circumstances. Each assessment is therefore carried out on a case-by-case basis.
Other elements also remain relevant:
• The concept of “fixed” remains essential. Existing commentary continues to apply, also in the context of remote work. In practice, a PE is generally not assumed when a location is used for less than six months.
• There is no PE when the activities carried out abroad are merely preparatory or auxiliary in nature.
• The assessment of a dependent agent PE (for example a local sales agent) is separate and independent from the analysis of a potential fixed place PE.
OECD introduces a new de minimis 50% time indicator
The OECD commentary introduces a new time-based indicator.
If an employee works less than 50% of their working time from home or from another relevant workplace abroad over a period of 12 months, that location does not constitute a place of business of the foreign enterprise. In that case, the analysis of a fixed place PE can in principle be concluded.
However, if an employee works more than 50% of the time from home, further analysis is required to determine whether a place of business exists.
Note:
• Working from home less than 50% of the time does not lead to a fixed place PE.
• Other factors may still play a role. For example, an employee acting as a local sales agent and negotiating or concluding contracts may still give rise to a dependent agent PE, even if the 50% time indicator is not met.
Commercial rationale required for a fixed place PE
If the 50% threshold is exceeded, this does not automatically lead to qualification as a fixed place PE. The assessment remains dependent on the facts and circumstances.
The central question is whether there is a commercial rationale for using the home in the foreign country for carrying out the enterprise’s activities.
In other words, it must be assessed whether the home actually plays a role in the core business activities of the enterprise. If the space is used solely for supportive tasks, such as administration or calendar management, it will in principle not be considered a fixed place PE.
A commercial rationale exists when the physical presence of the employee in the relevant country effectively contributes to the enterprise’s activities, for example:
• direct contact with clients
• building a client portfolio or business development
• managing suppliers and coordinating contracts
• collaboration with other enterprises
• providing services on-site to clients
Occasional client visits are insufficient. There must be a clear link between the employee’s presence, the location and the business activities in that country.
Allowing remote work solely to retain an employee or to reduce costs (for example office space) does not constitute a commercial rationale.
Examples from the OECD commentary
The OECD commentary includes five examples illustrating these concepts. Two examples are explained below.
Example 1
An employee works one to two days per week for one year from a home in another country than where the employer is established, which amounts to approximately 30% of working time.
The home may be considered “fixed” because it is used for business activities over a period of twelve months. There is therefore sufficient permanence and continuity.
Since the employee works less than 50% of the time from this home, the home does not constitute a place of business and there is no fixed place PE.
Example 2
An employee works for 12 months, 60% of the time, from their home in another country than where the employer is established. They perform a purely client-facing function and provide services remotely to clients in multiple countries, including the country where their home is located.
They only visit a client once per quarter. As in the first example, the home may be considered a fixed place.
Although the employee performs more than 50% of their activities remotely, it must be assessed whether there is a commercial rationale for their presence in the foreign country.
The fact that clients are also located in that country is not sufficient as a commercial rationale. Since client visits occur only sporadically, there is an insufficient connection with the location.
The home therefore does not qualify as a place of business and does not constitute a fixed place PE.
New optional provision for “extractive activities”
The OECD has further supplemented the commentary with a new alternative provision for extractive activities (such as the exploration and exploitation of oil, gas, minerals and other natural resources).
Such activities are often carried out temporarily by foreign enterprises in, for example, developing countries. These activities do not always meet the conditions for a fixed place PE under double tax treaties, meaning that the source state cannot levy corporate income tax on the income.
To better protect countries with valuable natural resources, the OECD introduces an optional provision that may lower the threshold for the existence of a fixed place PE. This allows source states to tax the profits attributable to these activities.
This provision is optional and must be agreed bilaterally in the double tax treaty.
Conclusion and practical points of attention
Does your company have employees who regularly work from abroad? If so, it is advisable to review your internal policy on international remote work in light of the new OECD commentary.
Also take into account the potential social security impact of cross-border remote work.
If you have any questions or would like support in analyzing the risk of a permanent establishment, please feel free to contact your usual contact person within Moore or one of our experts.
