OECD overview
The Organisation for Economic Co-operation and Development (OECD) works alongside governments, policymakers, stakeholders, and citizens to develop evidence-based international standards and respond to economic, social, and environmental challenges. Its work spans improving economic performance, reinforcing climate policy, strengthening education systems, and addressing international tax evasion and aggressive tax avoidance.
2025 Update approval and purpose
On 19 November 2025, the OECD released and approved an update to the OECD Model Tax Convention on Income and on Capital (the “2025 Update”). This update offers detailed guidance
on short-term cross-border remote working arrangements and introduces an alternative approach for taxing income derived from natural resource extraction. Overall, the update seeks to enhance tax certainty for both governments and businesses by clarifying how core treaty concepts apply in contemporary working models.
OECD Model Tax Convention
The OECD Model Tax Convention serves as a widely relied-upon reference framework for countries negotiating bilateral tax treaties. It supports cross-border business activity by:
- allocating taxing rights between jurisdictions,
- reducing the likelihood of double taxation,
- strengthening cooperation to address tax evasion and aggressive avoidance, and
- providing a consistent interpretive foundation for treaty concepts applied by tax authorities and courts.
Key changes in the 2025 Update
The 2025 Update introduces clarifications designed to reduce uncertainty in the application of treaty provisions, particularly those relating to Permanent Establishment (PE) under Article 5, in the context of cross-border remote working.
It also adds a new alternative provision addressing the taxation of income connected with natural resource extraction (such as oil, gas, and minerals), reinforcing source-country taxing rights. This change is especially relevant for developing and resource-rich economies.
Summary of notable clarifications
Remote working: clearer guidance on how cross-border home office and similar arrangements are assessed for fixed place of business PE purposes.
Natural resources: an alternative treaty provision aimed at strengthening taxing rights in the country where extraction activities take place.
Other refinements: updates intended to improve consistency in treaty interpretation and enhance overall tax certainty.
This article focuses on how the 2025 Update clarifies the Permanent Establishment concept for cross-border remote work under Article 5.
Permanent Establishment guidance for cross-border remote work (Article 5)
Cross-border working from home and “other relevant places”
The Commentary on fixed place of business PE has been expanded through a dedicated set of new paragraphs explaining the application of Article 5 to cross-border remote working
arrangements.
The guidance covers remote work carried out from:
an individual’s home, or
an “other relevant place” (for example, a holiday rental, a second residence, or the home of a friend or relative).
These locations share certain characteristics, including that they are generally not accessible to other personnel of the enterprise.
Facts and circumstances remain the core test
The assessment of PE must be grounded in the specific facts and circumstances applicable during the relevant period. It should not be determined based on assumptions derived from
prior or future periods.
Established treaty principles continue to apply, including:
the interpretation of “fixed” (reflecting the required level of permanence), and the treatment of preparatory or auxiliary activities and applicable treaty exceptions.
Not an automatic rule
Remote working from an individual’s home does not, by itself, mean that a foreign enterprise has a Permanent Establishment in that country. The mere use of a home office for work purposes is insufficient on its own to regard the home as the enterprise’s place of business or as being at the enterprise’s disposal.
Situations where a home office starts to look like a PE
A home office may begin to resemble a fixed place of business PE where, based on the overall circumstances:
the home is used on a regular and continuous basis for carrying on the enterprise’s business; and
the enterprise has effectively required the individual to use that location (for example,
where no office is provided despite the nature of the role clearly requiring one).
Situations where a home office generally does not create a PE
Where working from home is primarily driven by personal choice, is incidental, or occurs only occasionally, the home is typically not considered to be at the disposal of the enterprise. In addition, the activities performed from home are often preparatory or auxiliary in nature, which may further limit PE exposure under treaty exceptions.
Practical time-based indicator (50% concept)
The updated Commentary introduces a practical indicator based on the proportion of working time spent at a particular location.
Below 50% of total working time
A home or other relevant place will generally not be treated as a fixed place of business where the individual works from that location for less than 50% of their total working time.
Measurement period and approach
The 50% indicator is evaluated over any 12-month period beginning or ending within the fiscal year concerned.
The analysis focuses on the individual’s actual conduct, rather than relying solely on formal contractual arrangements.
50% or more of total working time
Where an individual spends 50% or more of their working time at home or another relevant place, the outcome depends on the specific facts and circumstances. A central factor is whether there is a commercial reason for the enterprise’s activities to be carried out by the individual in that country.
In the absence of a commercial reason, the location should generally not be regarded as a place of business, unless other facts indicate otherwise.
Commercial reason concept
A commercial reason is generally present where the individual’s physical presence in the country (or the same geographic region) supports or facilitates the enterprise’s business.
Examples include facilitation of:
- meetings with customers,
- development of a new customer base or identification of business opportunities,
- identification and management of suppliers and supplier contracts,
- real-time or near real-time interaction across time zones (for example, call centre services, virtual IT support, or medical services),
- access to business-relevant expertise,
- collaboration with other businesses,
- services requiring physical presence (such as on-site training or repair services at customer premises), and
- interaction with employees or other personnel of the enterprise (or associated enterprises).
No automatic conclusion from customers or time zones
The mere presence of customers, suppliers, or a different time zone does not automatically establish a commercial reason. A commercial reason is also unlikely where engagement is only intermittent or incidental, such as through brief or occasional visits.
Situations treated as not being a commercial reason
The Commentary clarifies that a commercial reason is not considered to exist where the enterprise permits remote work:
- solely to obtain or retain the individual’s services, or
- solely to achieve cost savings (for example, reducing expenditure on office space).
Cases where the individual is the business
Different considerations apply where the individual represents the only or primary person conducting the enterprise’s business. For instance, a self-employed consultant working in a country for an extended period and performing most business activities from a home office may constitute a fixed place of business PE.
Illustrative examples in the updated Commentary
Example A:
Work performed from a rented location in another country for three months following a holiday. The location lacks sufficient permanence and is therefore not “fixed.”
Example B:
Work from home in another country for 30% of total working time within a 12-month period. No fixed place of business exists, as usage is below 50%.
Example C:
Work from home in another country for 80% of total working time, combined with regular customer visits in that country. With at least 50% usage and a commercial reason, a fixed place of business PE is established.
Example D:
Work from home in another country for 60% of total working time, with services delivered remotely and quarterly visits to customer premises for performance reviews. Customer presence alone does not constitute a commercial reason; interactions are intermittent, so no fixed place PE arises.
Example E:
Work carried out almost entirely from home in another country, where the time-zone position enables continuous real-time services. With more than 50% use and a commercial reason, the home constitutes a fixed place of business PE.
Decision framework for practical PE assessment
Step 1: Location and arrangement
Identify the relevant location (home or other relevant place) and the period during which cross- border remote work takes place.
Step 2: “Fixed” requirement
Assess whether the level of permanence is sufficient to treat the location as fixed for treaty purposes.
Step 3: Working-time indicator
Determine whether the individual works from that location for less than 50% or 50% or more of total working time over any relevant 12-month period.
Step 4: Commercial reason
Where working time is 50% or more, evaluate whether the individual’s physical presence in that country supports the enterprise’s business for a commercial reason.
Step 5: Nature of activities
Confirm whether the activities carried out are core business activities or preparatory or auxiliary in nature.
Step 6: Conclusion and documentation
Determine the PE risk level (low, medium, or high) and document the facts and circumstances supporting the analysis.
Conclusion
The OECD’s 2025 Update enhances clarity on one of the most debated treaty issues following the rise of cross-border remote work: when a home office or similar location may constitute a fixed place Permanent Establishment under Article 5. The guidance confirms that a home office is not automatically at the disposal of the enterprise and reinforces a structured assessment based on facts and circumstances, the permanence requirement, working-time patterns (including the 50% indicator), and the existence or absence of a commercial reason linking the individual’s physical presence to the enterprise’s business. For internationally operating enterprises seeking reliable company registration services in India, the update serves as a practical benchmark for managing PE exposure without undermining legitimate flexible working arrangements.
Clear internal policies on cross-border remote work, consistent monitoring of working locations and time, clearly defined role parameters, and time-specific documentation of business rationale will be key to maintaining tax certainty and reducing treaty disputes. As remote operations become increasingly common, these updated PE principles provide a more predictable framework for determining when remote work remains a compliance consideration and when it gives rise to a taxable presence
