The OECD is updating its Model Tax Convention to reflect the growing trend of short-term cross-border remote work. The update, approved by the OECD Council, aims to provide greater certainty for governments and businesses worldwide, reflects the latest developments in international taxation, and offers expanded guidance on the interpretation and application of tax treaties. These changes will be incorporated into the upcoming revised full editions of the OECD Model, to be published in 2026.
The update provides clear guidance on how to assess cross-border home-office arrangements and when such remote work creates a permanent establishment.
When can a home office abroad create a permanent establishment?
According to the updated Commentary on Article 5 of the OECD Model Tax Convention 2025, a permanent establishment may arise only if the foreign home office is considered a “place of business at the disposal of the enterprise” and is sufficiently permanent and used for business purposes.
Examples include:
- The employee works from home long-term and regularly (> 50% of working time). If an employee works from home in another country at least 50% of their time over a 12-month period, it must be assessed whether the home office constitutes a place of business.
- There is a “business reason” for working in that country. A permanent establishment may arise if the enterprise has a commercial reason for the employee to carry out activities in that country — i.e., the employee’s physical presence facilitates the business. Typical examples: meeting customers or suppliers, searching for new clients, providing services requiring physical presence, access to experts or resources in that country, or working due to time zones. If a business reason exists and the employee works regularly from home, the home office is very likely to create a permanent establishment.
- The employee provides services to clients in that country (in person or virtually). If the employee is responsible for clients located in that country and their presence increases efficiency (e.g., service delivery, support, technical assistance), the home office may be seen as a place of business.
- The home office is used as the main workplace of a consultant or key person. For independent consultants or key company personnel (e.g., senior manager, founder), the home office may be considered a place of business if the majority of business activities take place there.
- The home office is a permanent location for business-relevant activities. It does not need to be formally provided by the company — it is sufficient that it is: consistently used, linked to business activities, used over a longer period, and not merely occasional.
- The company would otherwise need to set up an office in that country. If the role clearly requires physical presence abroad and the home office replaces a necessary office, it may be considered a permanent establishment.
Practical examples where a permanent establishment may arise:
- an employee works 80% from home in another country and regularly meets clients
- an employee works almost exclusively from home abroad to serve customers in another time zone
A home office does not create a permanent establishment if:
- it is used less than 50% of working time
- it is used only for the employee’s convenience
- the employee does not perform commercially significant activities (e.g., administrative support)
- the company does not require the home office and has no business reason
- activities are only preparatory or auxiliary
