OECD November 2025 Update: Remote Work and Permanent Establishment

A feature of modern working arrangements is that individuals are increasingly choosing to carry out all or part of their work for their employer from a location in another country that is not an office or other premises of the home country employer. The question of whether these arrangements could create a Permanent Establishment (PE) of the home country employer in the overseas location has long been a concern and official guidance had not yet caught up with the times.

Overview

The Organisation for Economic Co-operation and Development (OECD) has recently updated its Commentary on the Model Tax Convention. The updated guidance now provides clarity on when remote work may create a PE of the home country employer. These changes reflect modern working arrangements and provide much more certainty for businesses managing cross-border remote work.

The updated Commentary stresses that PE determination is based on the facts and circumstances during a given period, not hypothetical or future arrangements. This new guidance deals with cases where the individual’s place of work is not on company premises (so will typically be a second home, holiday rental etc.) and is therefore, a different PE analysis to the situation of an inter-company transfer.

Key Changes

The updated guidance introduces a clear framework for assessing whether remote work arrangements create a PE. These new tests provide much needed certainty for employers when managing cross-border arrangements and mean this is an ideal time to review remote working arrangements to allow a clear and consistent policy to be applied across their globally mobile population.

New Tests

There are two key factors that underpin the updated guidance.

1. 50% Working Time Threshold – If an individual works from a home or another non-company location for less than 50% of their total working time in any 12-month period, that location is generally not be a fixed place of business for the company.
2. Commercial Reason Test – Even if the 50% threshold is exceeded, a PE arises only if there is a commercial reason for the individual’s presence in that State.

Evaluating whether there is a commercial reason will require a consideration of the business of the company and how the specific activities of the individual relate to that business. A commercial reason requires a link between the remote worker’s presence at the home or other relevant place in other country and the carrying on of the business of their employer in that country.

Examples of commercial reasons for business activities

Commercial reasons may exist when the physical presence facilitates the company’s business, e.g.:

• Meeting customers or suppliers of the employer
• Building a local customer base
• Managing supplier relationships
• Accessing business relevant local expertise
• Providing real-time services across time zones
• Performing services requiring physical presence (training, repairs)
• Cost-saving or employee convenience alone is not a commercial reason
• Intermittent or incidental engagement does not normally qualify as a commercial reason

In general, it is important to note that the presence of factors that might appear to imply a commercial reason for an individual’s presence is not enough in itself to create a PE. For example, simply having customers, suppliers, or related companies in the country where the home or other relevant place is located does not automatically mean there is a commercial reason to use that place for business activities. There needs to be a link between the individual working at the host location and those business activities.

Summary

1. Is the place fixed and used continuously?
2. Does the individual work there > 50% of total working time in any 12-month period?
3. Is there a commercial reason for presence in that state?

→ If YES to all → PE risk exists.

OECD Examples

The updated guidance stresses that each case should be considered on its own merits but does provide some examples.

Implications for Your Business

The updated guidance provides welcome clarity on the key factors to be considered when analysing whether remote working may create a PE of the home country employer in the host location. In summary:

• Temporary remote working rarely creates a PE, but the risk increases with the amount of time spent working abroad. Once the 50% threshold is reached then further review will be needed
• If the 50% threshold is reached, activities tied to local markets or requiring physical presence in the host location may then create a PE but careful analysis will be needed

Suggested Action Points for Businesses:

• Review remote-working policies
• Have systems in place to track remote working including a requirement for remote workers to report travel and working patterns to a central location
• Document the rationale for remote working arrangements. and provide clarity to employees on the types of business they are permitted to carry out in the host location

This is new guidance and does not answer every question in relation to the tax implications of remote working in another country. It is also important to remember that this is just one consideration when reviewing remote worker arrangements. Other issues, such as potential host country tax and social security liabilities and filing requirements will also need to be reviewed.

Blick Rothenberg would be happy to discuss this new guidance and its application to your company’s particular population and circumstances.

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.