On 30 September 2026, the OECD published the consolidated version of the OECD Model Tax Convention, which formally incorporates the amendments approved by the OECD Council on 18 November 2025, including those on remote working and when it can give rise to a permanent establishment.
In short, the new paragraphs 44.1–44.21 replace the previous guidance on home offices (paras. 18 and 19), which was considered fragmented and had been overtaken by the spread of remote working. They clarify that, as a rule, an employee working from home in another country does not create a permanent establishment (PE) of the enterprise in that country. A risk arises only where two conditions are met together:
- the employee works from the other country for at least 50% of their time, and their presence in that State actually serves the enterprise’s business;
- there is a commercial reason justifying the performance of the activity from that State.
First test (time): the 50% threshold
If the employee works from abroad for less than 50% of their total working time, over any 12-month period beginning or ending in the fiscal year concerned, that location will generally not constitute a PE.
If the 50% threshold is met or exceeded, a PE does not arise automatically: further analysis is required (the commercial reason test).
Second test: the commercial reason
Once the time threshold set out in the previous test has been exceeded, it must be determined whether the employee’s physical presence in that country actually benefits the enterprise’s business. If so, there is a “commercial reason” and the PE risk becomes real.
There is a commercial reason when the employee:
- regularly meets existing clients in that country;
- develops new clients or seeks local business opportunities;
- has ongoing dealings with local suppliers, partners or group companies;
- provides training, support or maintenance requiring physical presence.
There is no commercial reason when remote working:
- is allowed solely for the employee’s personal needs;
- serves to retain a qualified employee;
- serves to reduce the enterprise’s costs (e.g. office space);
- is driven solely by a different time zone or the mere presence of clients in the country.
In summary, the mere fact that an employee works from their own home (or from a second home, a holiday home or a relative’s home) does not turn that place into a place of business of the enterprise. Each situation must be assessed case by case, looking at the actual facts over a given period.
Finally, as a result of these amendments, the fact that the enterprise has no unrestricted access to the employee’s home is no longer sufficient, on its own, to rule out a PE. In the past this argument was almost decisive; today it carries less weight if other factors point the other way.
That said, it should be stressed that, despite these amendments, grey areas remain: the new rules do not set a definitive threshold and leave room for interpretation.
In light of the above, where employees are authorised by the enterprise to work remotely from another State, it is advisable to carry out a specific mapping exercise to assess whether there is a potential PE risk.
