From Policy to Practice: What the OECD's Remote Work Guidance Means for US Businesses

While this flexibility offers significant commercial and employee engagement benefits, it also creates new tax risks. One of the most significant is whether an employee working remotely from another country inadvertently creates a permanent establishment (PE) for their employer, exposing the business to corporate tax, payroll and compliance obligations in that jurisdiction.

Earlier this year, I attended the OECD’s public consultation on the future of global mobility, where tax authorities, businesses and advisers discussed how existing international tax rules should adapt to modern working practices. One of the key themes emerging from those discussions was the need for greater certainty around when remote working arrangements create a fixed place of business permanent establishment. That certainty has now begun to emerge.

The United States Signals Its Approach

At the OECD–USCIB International Tax Conference in June 2026, officials from the U.S. Department of the Treasury confirmed that the United States intends to apply the OECD’s updated 2025 Commentary on Article 5(1) of the OECD Model Tax Convention when interpreting existing US income tax treaties that are based on that provision. Although the OECD Commentary does not change the wording of any treaty, it provides important guidance on how tax authorities should interpret the concept of a fixed place of business in the context of remote work. The confirmation from Treasury is significant because it demonstrates that the United States intends to rely on this updated framework when considering whether an employee’s home office or other remote working location constitutes a permanent establishment under existing treaties.

For multinational employers with employees working remotely in the United States or US businesses with employees working overseas this provides greater clarity on how the IRS is likely to approach these questions going forward.

A More Practical Approach to Remote Working

The updated Commentary introduces a structured framework for assessing remote working arrangements.

The starting point is relatively straightforward. Where an employee works from a home office or another non-company location for less than 50% of their total working time during a rolling 12-month period, that location will generally not be regarded as a place of business of the enterprise.

However, exceeding the 50% threshold does not automatically create a permanent establishment. Instead, the analysis becomes qualitative rather than quantitative. Tax authorities must consider whether there is a genuine commercial reason for the business to be carried on from that location. If an employee simply chooses to work remotely for personal convenience, the location will generally not constitute a place of business of the enterprise. Conversely, where the employer requires or expects the employee to work from that location because it supports the commercial activities of the business, the risk of a permanent establishment increases significantly. This represents a more practical and commercially realistic framework than employers have previously had available.

Why US Businesses Should Care

Although the updated Commentary focuses on permanent establishment, the implications extend far beyond corporate income tax. Where a permanent establishment exists in the United States, a foreign enterprise may become subject to US federal income tax on profits attributable to that establishment. Depending on the facts, there may also be implications for payroll withholding, employment tax reporting, transfer pricing and the taxation of employees working in the United States.

Equally important, however, is what happens even where no permanent establishment exists. The absence of a PE should not be interpreted as meaning there are no US tax obligations. Employers may still face federal, state and local payroll obligations, state corporate income tax exposure, unemployment insurance requirements, social security considerations and employee reporting obligations. This is particularly important in the United States, where individual states frequently apply different rules and do not necessarily follow the treatment adopted for federal tax purposes or recognise treaty protection.

For many organisations, the most immediate compliance risk may therefore arise not from the existence of a permanent establishment, but from payroll and state tax obligations that develop long before a PE question is ever considered.

A Governance Challenge Rather Than a Tax Problem

One of the strongest messages to emerge from both the OECD consultation and the subsequent discussions with tax authorities is that remote work should no longer be viewed as simply a tax issue.

It is fundamentally a governance issue. Most organisations can explain their remote working policy. Far fewer can confidently answer three simple questions:

• Which employees are working remotely outside their employing country?
• Where are they working?
• Why are they working there?

Without reliable data, approval processes and cross-functional oversight, organisations cannot accurately assess permanent establishment risk, payroll obligations or wider employment tax exposures. Increasingly, tax authorities expect employers to demonstrate that they understand where their employees are working and have appropriate governance processes in place to manage those arrangements.

What Should Organisations Do Next?

Rather than reacting to individual remote working requests, organisations should adopt a structured governance framework that enables risks to be identified and managed before employees begin working overseas.

At Blick Rothenberg, we recommend a four-stage approach:

1) Discovery and Scoping, where organisations build an accurate picture of their remote workforce by identifying where employees are working, how often they work outside their employing jurisdiction and what existing policies and approval processes are in place

2) Remote Work Health check, bringing together tax, payroll, HR and legal teams to assess permanent establishment risk, payroll withholding, social security, transfer pricing and employment tax obligations. The outcome should be a practical roadmap that prioritises the areas requiring immediate attention

3) Implementing Targeted Solutions. Depending on the organisation’s risk profile, this may include updating remote work policies, strengthening approval processes, redesigning payroll procedures, reviewing transfer pricing arrangements or undertaking detailed permanent establishment analyses for higher-risk locations

4) Ongoing Governance Framework. Remote working patterns continue to evolve, employees relocate and tax authority expectations develop over time. Regular reviews, consistent approval processes and continuous monitoring are therefore essential to maintaining compliance

Looking Ahead

The OECD’s consultation highlighted that the future of global mobility will be shaped by flexibility rather than traditional assignment models. The United States’ confirmation that it will apply the updated OECD Commentary demonstrates that tax authorities are beginning to translate that thinking into practical treaty interpretation.

For employers, the priority is no longer simply understanding the technical rules surrounding permanent establishments. The real challenge is building governance frameworks that enable informed decisions before tax risks arise.

Those organisations that can demonstrate they know who is working where, why they are working there and how those arrangements are governed will be best placed to support workforce flexibility while managing tax risk in an increasingly mobile world.

Would you like to know more?

If you would like to discuss any of the above, please speak to your usual Blick Rothenberg contact or David using there form below.