The OECD has released an updated version of the Model Tax Convention on Income and Capital, with clarification around remote working arrangements. The OECD Model incorporates the latest developments in international taxation and provides guidance on interpreting and applying bilateral tax treaties.
The Organisation for Economic Co-operation and Development (OECD) Council approved the key changes in November 2025 and these updates were published in December. Among the revisions are clarifications to the Permanent Establishment (PE) rules (Article 5), particularly in relation to remote working arrangements.
- The guidance explains when remote working may constitute a fixed place of business under tax treaties.
- Under the new framework, a home will generally not be considered a PE if an individual spends less than 50% of their working time there during any 12-month period. If this is met or exceeded, further analysis of the facts and circumstances is required.
- A home office set up in another jurisdiction for commercial purposes is more likely to be treated as a place of business.
- For example, direct engagement with customers, suppliers, or access to resources.
- Cost reduction or talent retention alone does not create a PE.
- The update introduces a nuanced framework, including specific examples, for assessing when a home office qualifies as a PE.
- This focuses on factors such as continuity, the enterprise's requirements, the proportion of time spent at home and the commercial necessity of the individual's presence.
- Example B: An employee works from home 30% of the time: not a PE.
- Example C: An employee works from home 80% of the time and regularly visits clients: likely a PE due to permanence and commercial reasons.
- Example D: An employee works from home 60% of the time but only occasionally visits clients: not a PE, as the commercial reason is lacking.
- Example E: An employee works almost exclusively from home to provide real-time services to clients in other time zones: likely a PE, as the arrangement facilitates business.
- These clarifications are particularly relevant in today's flexible working environment, aiming to provide certainty for taxpayers while preventing unintended tax exposure.
- No changes were made to the wording of Article 5 itself.
- The 2025 update revises the commentary to provide a practical framework for home-office and 'other relevant place' situations.
A new paragraph has been added to Article 25.
- This clarifies the role of competent authorities in determining whether a measure falls within the scope of a tax treaty for dispute resolution under the General Agreement on Trade in Services.
Further changes relate to the Exchange Of Information on Request (EOIR).
- Article 26 now expands on how exchanged information may be used and communicated.
- It specifies that information obtained through EOIR can be applied to tax matters involving persons other than those originally identified and it provides guidance on taxpayer access to such information.
Useful guides on this topic
Tax treaties: Links & OECD glossary of terms
What are the UK's Double tax treaties? What are the definitions and common terms used in Double Tax Treaties? Where can I find a glossary?
Tax treaties: Where do you live?
Where do you live for the purposes of a double tax treaty? How can you resolve disputes and uncertainties over your tax residency?
External links