Key takeaways

Most significantly, and as discussed in more detail in this alert, the Update contains new guidance on remote working and the respective permanent establishment (PE) considerations. The Update also includes changes to the PE provision concerning natural resources, and other improvements to enhance consistency in treaty interpretation and to strengthen tax certainty. Concurrent with the Update, the OECD also released a Public Consultation Document: Global Mobility (“Public Consultation”), seeking stakeholder input on topics not covered by the Update. The Public Consultation requests input on tax issues applicable to individuals, such as residency, employment income, and preferential regimes, as well as on corporate tax issues, such as residence as a result of the presence of senior executives or board meetings, dependent agent PE, services PE, profit attribution, and transfer pricing. Interested parties are invited to send their comments to the OECD Secretariat no later than 22 December 2025.

In more detail

Pre-2025 OECD guidance on remote work arrangements

The 2017 OECD Commentary offered limited guidance on the PE characterization of home offices.ⁱ The guidance acknowledges that a home office may in principle constitute a place of business, but goes on to explain that this should only be the case where the use of the home office is regular, not intermittent, and where the foreign enterprise effectively requires the employee to use such home office by not providing office space. Further, the home office has to be "at the disposal" of the employer. In this regard, it is relevant whether or not the employer reimburses the employee for any work-related costs triggered by the home office, such as rent, infrastructure or equipment. Prompted by the COVID-19 pandemic, the OECD addressed the tax implications of remote work arrangements in OECD Updated Guidance on Tax Treaties and the Impact of the COVID-19 Pandemic dated 21 January 2021 ("OECD COVID Guidance"). The OECD COVID Guidance suggested that a home office used by a remote worker should not constitute a fixed place of business PE (“FPOB PE”) because of the exceptional nature of the use.ⁱⁱ This suggestion was based on the understanding that the activity of the respective employee would either lack the necessary degree of permanency or continuity to be considered "fixed" or because the business would have no access or control over that employee's home office. In addition, as long as the employer "provides an office which in normal circumstances is available to its employees" the fixed place of business risk was considered to be reduced.ⁱⁱⁱ

The OECD COVID Guidance was time-limited to the duration of the COVID-19 pandemic. Owing to a proliferation of remote work arrangements after the COVID-19 pandemic, OECD member states and taxpayers alike called for the OECD to develop more lasting guidance on the permanent establishment characterization of home offices. There was general consensus that any resulting guidance should not lead to findings of micro-PEs. The OECD Working Party 1 heeded that call and in its scope of work, announced that in relation to Article 5 it would address in the second half of 2025 the following main areas of concern:

• Whether home offices constitute PE
• Application of paragraph 4 “preparatory or auxiliary” exclusions
• Meaning of “habitually” exercising contract concluding authority within the meaning of paragraph 5 of Article 5^iv

The 2025 Update addresses some, but not all of these points.

The new guidance

Paragraph 29 of the Update deletes the current guidance contained in 2017 OECD Commentary, Article 5, paragraphs 18 and 19 and inserts new guidance in paragraphs 44.1-44.21. This new guidance only addresses the qualification of home offices as a FPOB PE. The Update does not offer any detailed guidance on the application of “preparatory or auxiliary” exclusions other than stating that preparatory or auxiliary activities do not create a FPOB PE and does not deal with dependent agent PE (“DAPE”) considerations at all.

With respect to FPOB PE, the Update points out that it might be difficult to ascertain whether the activities carried out in a home office or other relevant place (hereinafter referred to as “Home Office”) are sufficient to constitute a fixed place of business, as a Home Office is usually under the control of the respective employee and not accessible by other persons working for the enterprise.^v A key takeaway from the Update is that the “at the disposal of the enterprise” criterion no longer seems to apply to determine whether a Home Office constitutes a FPOB PE, given the deletions of paragraphs 18 and 19 from the 2017 OECD Commentary prior to the Update.^vi The pre-Update Commentary utilized a "facts and circumstances" analysis to determine whether this condition was present, noting that the premises would be considered at the disposal of the foreign enterprise if the home office was used continuously and if the employer "required" use of the home office by not providing another option. In any case, by deleting paragraphs 18 and 19 and implementing the new guidance, this step appears to have been removed from the permanent establishment analysis for Home Offices. Instead, the Update focuses on whether the activities are (i) intermittent, and if they are not, (ii) whether the employer has a commercial reason for the activities to be undertaken in the other Contracting State.

Intermittent activities

As an objective bright line test, the Update provides that activities carried out in a Home Office are considered intermittent and, thus, cannot be considered a place of business of the enterprise, if the individual carries out less than 50% of their total working time over any twelve-month period for that enterprise in this space. The Update states that exceptions to this approach are not anticipated to occur in most situations, especially in light of the fact that in many cases, it is the individual who chooses to work from home for personal reasons.^vii

If the 50% threshold is exceeded, the inquiry turns to whether the Home Office is a place of business of the enterprise. A key consideration (discussed in more detail in the next section of this alert) is whether there are "commercial reasons" for the remote work arrangement.^viii

In essence, the OECD has created a fixed threshold below which a FPOB PE should not be considered to exist in most circumstances. That said, even though the OECD stated in the Update that it is anticipated that no PE exists if the 50% threshold is not exceeded, it remains to be seen how authorities apply this threshold if there are substantial commercial reasons for in-country presence or if other circumstances suggest that the fixed threshold should not be the end of the analysis.^ix We observe that this threshold seems to have in mind a full-year employment period, whereby the 50% threshold coincides with the regular six months threshold usually applied to determine permanency for purposes of a permanent establishment.^x It remains to be seen how tax authorities will apply this threshold in situations in which a given employee works for their employer for less than a full year or where the specific project only required a presence in-country for less than six months (i.e., what in these cases constitutes “total working time”).

Commercial reason for the activities

As mentioned, in determining whether the Home Office is a place of business of the enterprise, the Update provides that a key consideration is whether there is a commercial reason for the activities to be undertaken by the individual in that place. The Update considers a commercial reason to exist if the physical presence of the employee in the other country, by itself, facilitates the carrying on of the business of the enterprise. This could be because there are people or resources in the country the enterprise needs access to.^xi For example, a commercial reason will be present where the individual directly engages with customers, suppliers, associated enterprises or other persons on behalf of the enterprise and that engagement is facilitated by the individual being located in that State.^xii A commercial reason does not exist if the enterprise enables the individual to work from the Home Office solely to obtain or retain their services, or to reduce costs.^xiii

The Update suggests that a commercial reason may exist if the enterprise would make use of another place if the Home Office were not available because a physical presence is important for the business.^xiv Similarly, a commercial reason may be found if the individual works from the Home Office to cultivate a new customer base or identify business opportunities or new suppliers, manage relationships, collaborate with other businesses or obtain expertise from incountry parties (related or unrelated), or perform services for customers (related or unrelated) in-country where physical presence is required.^xv The Update specifically references a Home Office being used to facilitate "real-time, or near realtime, interaction with customers or suppliers in different time zone(s)" as a commercial reason, and uses call centers and virtual support as an example. This strikes us as odd, because in those circumstances, locating the Home Office in a particular country is not for the purpose of addressing a need to have a physical presence in that location. Instead, the call center facilitates interaction with customers in other locations, and in different time zones.

The Update further clarifies that, while enabling the enterprise through the in-country presence to have real time interaction with in-region customers or suppliers can contribute to the commercial reason, the mere existence of customers, suppliers, or related parties should not automatically lead to the conclusion that a commercial reason is present. Likewise, short occasional visits to customers or an engagement that is minor in the context of the overall customer relationship would also not be sufficient to conclude that there is a commercial reason.^xvi

Absent other facts and circumstances that would suggest otherwise, an enterprise would not have a fixed place of business if the “commercial reason” prong is not met. An exception to this would be where an individual, such as a consultant, is the only or primary person carrying out the business activities of the enterprise, in which case the Home Office would generally constitute a fixed place of business.^xvii The Update gives several examples in paragraph 44.21 that incorporate the above guidance.

Reservations of OECD member states

Paragraph 34 of the Update renumbers and replaces paragraphs 170 to 216 of the 2017 OECD Commentary on Article 5, which identify certain reservations of OECD Member States. We include notable reservations here.

Israel expressed most reservations to the 2025 Update. Notably, it reserves the following rights:

• To calculate the 50% work time threshold either by time worked or time spent in and out of the country (renumbered in the 2017 OECD Commentary on Article 5 as Paragraph 220)
• To consider a commercial reason to be given where an enterprise employs a number of employees in Israel creating a meaningful group relative to their business unit (Paragraph 221)
• To take the position that even where there is no commercial reason, a FPOB PE might be given where the employee carries out an activity that is “core” to the business or the activity contributes significantly to value creation for the enterprise (Paragraph 222)

The Czech Republic reserves its position to the entirety of the updated guidance, as it does not agree with limiting the possibility of the existence of a PE by providing a determinative description of premises that can create a FPOB PE (Paragraph 225). Notably, Chile does not adhere to the updated guidance at all (Paragraph 226).

Positions of non-member economies

Paragraph 128 et seq. of the Update revise and update the list of Non- Member Countries and their Positions on the Commentary. Relevant to the remote work question, paragraph 169 clarifies that India does not agree with the 2025 Update, including the 50% threshold and the introduction of a commercial reason. India considers a Home Office to be at the disposal of the employer and, therefore, to constitute a FPOB PE.

Nigeria does not agree with the exclusion for intermittent or short occasional visits and considers a commercial reason to be given if the occasional or intermittent visits are in relation to an activity that lasts more than six months. It further considers the reduction of costs a commercial reason and deems a FPOB PE to arise where the Home Office is maintained for more than six months.^xviii

Malaysia reserves the right to bilaterally agree on the percentage of total working time that needs to be crossed to create a FPOB PE.^xix

Implications of the new guidance

The Update was long anticipated and met some of the high expectations of taxpayers and other observers.

A welcome development is the clarification that individuals working from a Home Office whose only activity is to provide services to their employer and who do not have contact with customers and suppliers do not constitute a FPOB PE. This should provide some comfort to companies that might have recruited talent in foreign countries where they do not provide for office space – provided that these employees do not have any contact with associated enterprises, third parties and customers.

A further welcome clarification is the introduction of a 50% total working time threshold, which means that if this threshold is not met, no FPOB PE should be created. However, and as noted above, an open question is how the term “total working time” is interpreted in special circumstances to avoid disproportionate outcomes.

On the other hand, once the above threshold is exceeded, any activity that includes contact with associated enterprises, suppliers or customers could meet the commercial reason test, thus constituting a FPOB PE. Therefore, companies could face the situation where they have micro-PEs in countries where they have engaged a small number of employees who have customer or supplier contact. Countries that use a dynamic application of the OECD Commentary could, therefore, assess FPOB PEs for years prior to the Update. Here, clarifications on profit attribution and pricing of related party transactions under Article 9 would be important, which is on the 2026 agenda of Working Party 6 (and in the scope of the Public Consultation in January 2026). Taxpayers should monitor this development closely and re-assess their PE position in relevant countries if needed.

Overall, the Update gives taxpayers clearer guidance and contributes to tax certainty. That said, it remains to be seen how it will interact with the anticipated Working Party 6 work on PE profit attribution and transfer pricing. We expect to see first drafts concerning this workstream once stakeholders have submitted their input on the Public Consultation.

i See 2017 OECD Commentary, Art 5 ¶¶ 18 et seq
ii See Paragraph 10 OECD COVID Guidance.
iii See Paragraph 16 OECD COVID Guidance.]
iv See OECD Secretariat Update, Global Mobility Stakeholder Meeting on April 28, 2025.
v See Update ¶ 44.2.
vi See 2017 OECD Commentary, Art 5 ¶¶ 18 and 19.
vii See Update ¶¶ 44.8 et seq.
viii See Update ¶ 44.11.
ix See Update ¶ 44.7.
x See 2017 OECD Commentary, Art 5 ¶ 28.
xi See Update ¶¶ 44.11 et seq.
xii See Update ¶¶ 44.12.
xiii See Update ¶¶ 44.15, 44.16.
xiv See Update ¶ 44.12.
xv See Update ¶ 44.17.
xvi See Update ¶ 44.18.
xvii See Update ¶¶ 44.19 et seq.
xviii See Update at paragraph 170.
xix See Update at paragraph 170.