OECD 2025 Update: the new commentary on remote working
25/11/25
The OECD has released its 2025 update to the OECD Model Tax Convention ('MTC') and the accompanying Commentary. This update reflects recent developments in international taxation and provides enhanced guidance on the interpretation and application of tax treaties. One of the most significant changes is the revised Commentary to the permanent establishment ('PE') article. The new guidance aims to clarify uncertainties around how to interpret the fixed place of business PE in situations involving cross-border remote work.
What does this mean for your organisation?
If a company has a permanent establishment in another country, this will affect the corporate tax liability in both countries. A PE can also entail wage tax obligations in that foreign country, and it can affect the employee's income tax. The question of whether an employee's foreign workplace constitutes a PE can therefore have tax consequences in several areas.
The updated Commentary may offer new insights into the tax implications of cross-border remote work, although the practical impact will depend on the jurisdictions involved. This is particularly relevant in cases where employees work remotely from abroad for extended periods or for several days per week. Organisations should therefore reassess their remote working arrangements to determine whether these may give rise to a fixed place of business PE risk under the updated guidance, particularly for employees spending more than 50% of their working time at home or another location abroad and whose presence abroad serves a commercial purpose for the business.
The commentary
In the 2025 update to the MTC the most substantial changes concern the Commentary on Article 5, which addresses the definition of a PE, a fixed place of business of a resident of one contracting state in the other. The updated Commentary specifically focuses on situations in which employees work remotely from locations that are not ordinarily under the employer’s control, such as an employee’s home or holiday residence.
The revisions can be seen partly as changes and partly as clarifications. Previously, the Commentary placed significant weight on whether the employer explicitly or implicitly required the employee to work from home in determining whether a home office qualifies as a PE of the enterprise. In practice, the notion of an ‘implicit requirement’ created considerable uncertainty and led to differing interpretations among tax authorities. In the updated Commentary, the employer requirement - whether explicit or implicit - is no longer included.
Another important (and logical) development is that the new guidance is no longer limited to the employee’s home. It also applies to other locations used for work, such as a rented desk in a co-working space or any other place where employment activities are carried out.
A key topic addressed is the degree of permanence required. If an employee works from home (or another relevant place) for less than 50% of their working time over any twelve-month period beginning or ending in a fiscal year, that place is generally not expected to constitute a permanent establishment. If the 50% threshold is exceeded, the determination depends on the specific facts and circumstances.
In this respect the updated Commentary places stronger emphasis on the commercial reasons for remote working. It includes a list of examples where presence abroad serves a commercial purpose for the business, most of which involve outward-facing activities. One example, however, relates to interactions with the enterprise’s own personnel or personnel of associated enterprises.
Although the amendments to the Commentary on Article 5 appear to offer more clarity and a more coherent assessment framework, their immediate practical value may still be limited.
First, the Commentary explicitly states that the revised considerations are “relevant, but not exhaustive” for determining whether a home or other location constitutes a PE. Other factors may still be taken into account, although - given the reference to the 'prominent consideration’ of commercial reasons - these additional factors may carry less weight.
Second, most existing tax treaties are based on earlier versions of the MTC and Commentary, often predating even the previous update. This raises questions about the extent to which treaties should be interpreted dynamically, and whether the new guidance should be viewed as clarification or as substantive change. While the underlying concept of a remote-working permanent establishment may not have shifted fundamentally, the emphasis certainly has.
Overall, the amendments are helpful in providing a more workable and better-suited framework for remote-working practices that have evolved in recent years. However, they certainly do not resolve all debates regarding the existence of a home-office PE.
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