OECD 2025 Update: New Guidance on Permanent Establishments in Remote Work Situations
The OECD has released its 2025 update to the Commentary on the Model Tax Convention (MTC), offering important clarifications on the concept of a permanent establishment (PE).
One of the most notable areas of focus is the growing practice of cross-border remote work. As hybrid working has become standard for many organisations, uncertainty has persisted around when an employee working from home abroad could create a taxable presence for their employer. The updated Commentary aims to bring more clarity to this area by refining how the “fixed place of business” PE should be interpreted in modern working environments.
A refined framework for remote-work PE analysis
The new Commentary moves away from older interpretations that placed significant emphasis on whether an employer required an employee to work from home. That test has been removed. Instead, the OECD introduces a more nuanced and holistic assessment based on how the employee actually performs their work and how their presence abroad relates to the enterprise’s business.
A central element in this refined approach is the introduction of a 50% working-time indicator. Where an individual works from a home or other place abroad for less than half of their total working time over a twelve-month period, that location is generally not expected to constitute a place of business of the enterprise. When the employee spends more than 50% of their working time in a foreign state, a more detailed assessment is required.
At the heart of this assessment lies a new and prominent consideration: the existence of a commercial reason for the employee’s presence abroad. The OECD explains that a home office may be regarded as a place of business of the enterprise if the employee’s physical presence in the foreign State facilitates the conduct of the company’s business. This could include regular interaction with clients or suppliers in that country, developing business opportunities there, or performing services that benefit from alignment with the foreign market or time zone.
Where the employee is abroad purely for personal reasons and their location does not offer commercial advantages for the business, a PE is unlikely to arise, even if the employee works from that location for a substantial proportion of their time. The Commentary also stresses that occasional or incidental contact with persons in the foreign state generally does not create a commercial rationale for considering the location a place of business.
Notably, the familiar safeguard in Article 5(4) remains unchanged: even if a place is fixed and used for business, it will not constitute a PE if the activities performed there are preparatory or auxiliary.
Practical clarifications through examples
To support consistent application, the OECD has included several detailed examples illustrating how the new framework should be interpreted in everyday remote-work situations. These scenarios show that PE outcomes depend on a combination of factors, including the employee’s working pattern, the nature of their role, and the extent to which their presence abroad supports the company’s commercial interests.
For example, an employee who occasionally works from another country or who splits their time in a way that keeps remote work under the 50% threshold is unlikely to create a PE. An employee who performs most of their work from abroad and regularly engages with customers or suppliers in that State may do so. Other examples highlight circumstances in which substantial remote work does not pose PE risk because the employee’s location has no bearing on the enterprise’s commercial activities.
What this means for organisations
The updated Commentary provides a clearer and more contemporary framework that better reflects today’s working practices. While the underlying principles remain the same, the refined guidance reduces some of the uncertainty surrounding remote work. At the same time, the analysis remains highly fact-dependent. Many tax treaties are based on earlier versions of the MTC, and not all jurisdictions may adopt or interpret the updated Commentary in the same way.
For multinational groups, Dutch companies with employees abroad, or organisations hiring remote talent in other jurisdictions, the update highlights the need to review existing arrangements. Roles involving significant interaction with foreign clients or stakeholders, or work that benefits from being performed within a particular geographic area or time zone, may warrant closer attention.
How Dutchtaxadvice can assist
Remote work offers flexibility and broader access to talent, but it also brings tax considerations that require careful analysis. At Dutchtaxadvice, we help organisations understand whether particular remote-work scenarios may give rise to a PE risk and what steps can be taken to manage that exposure. This includes reviewing employee functions, working-from-home policies, and contractual terms, as well as assessing the commercial-reason test in light of the new OECD guidance.
We will continue to monitor how the updated Commentary is applied in practice and how national authorities, including the Dutch tax authorities, interpret these developments.
If you would like to assess your remote-work arrangements or discuss any potential implications, our team is ready to support you.
Comments are closed.