Introduction
On November 19, 2025, the OECD published a much-anticipated update to its Model Tax Convention. This update includes many relevant amendments. Some have to do with Article 9 (a clarification of its scope vis-à-vis domestic laws – BEPS-inspired or otherwise – on interest deductibility), others with Article 25 (on dispute resolution in cases that may be subject to GATS), and even with Article 26 (on information disclosure and the use of information for tax matters “concerning persons other than those in respect of which the information was initially received”).
The most important modification brought by the 2025 update has to do with PEs, and specifically “remote work PEs”. Changes to the Commentary on Article 5 of the Model also include a new “free-standing alternative provision” on “activities in connection with the exploration and exploitation of extractible natural resources”, but this relies on bilateral negotiations and feels like a modest answer to the ongoing work at the UN. The star of the show is the amendment to the Commentary regarding “remote work PEs”, or “home office PEs”, or “anywhere office PEs”, and that is the focus of this article.
Preliminary comments
In this piece, I provide insight on the Commentary regarding “remote work PEs” as well as on some members’ reservations and non-members’ positions. Importantly, the statements made by the representatives of OECD members and non-members are not necessarily aligned with how their local courts would view the subject of those statements. If a country said nothing about a new paragraph in the Commentary to Article 5, one would assume that it “accepted” it – that should carry no weight whatsoever in litigation. Judges (of non-member as well as OECD member jurisdictions) should read the OECD Model Commentary as an opinion on the meaning and scope of the Model’s clauses. Whether that opinion is in line with local legal and/or constitutional rules is a matter for courts to settle on their own.
You may disagree with me and argue that the OECD Model Commentary is a sort of “contextual” bit of information or maybe something to be “taken into account” by courts in interpreting existing tax treaties (a dynamic reading of Article 31(2) and 31(3) of the VCLT). In other words, you may take the view that if two countries were able to do so but did not oppose to the new Commentary, courts must interpret any treaty between them based on that (whether they are members or non-members, but presumably the argument would be even stronger if the treaty had been signed by two OECD members). The maximal expression of pacta sunt servanda.
If you take that position, you may also consider that the animus of government representatives in relation to emerging social and labor trends is very malleable (and not just because of the trends themselves – those representatives may be out of office in four, five, or six years in many democracies). As we explain below, Israel and the Czech Republic are two countries that disagree with the OECD in relation to remote work PEs by favoring a more expansive interpretation of the term. Time will tell whether more companies will allow their employees to work remotely and whether that movement will push currently “silent” jurisdictions to manifest themselves, perhaps making reservations of their own and stretching the concept of PE in treaties even further.
The last thing I will say about this topic before we jump into the 2025 update is that PEs are a Dylan Thomas-esque remnant of a bygone era (this could easily have been AI, but I actually have a t-shirt with the words “Do not go gentle into that good night; rage, rage against the dying of the light”). In some respects, what we are doing is trying to add an OLED screen to a fax machine, and it shows. A couple of articles I wrote for Tax Notes outline hypotheses for social media influencers to be qualified as PEs, or fraudulent AI engines to turn victims of deepfakes into “apparent agents” and therefore PEs under Article 5(5) of the Model. This is a similar exercise, of fitting a clearly fluid, multifactorial work relationship into what we know as a permanent establishment, and explaining why we think it is “fixed”, or a “place of business”, or “at the disposal of the enterprise”, and so on.
The New Commentary on Article 5 of the Model
Paragraph 26 of the 2025 update deletes two paragraphs of the Commentary to Article 5. The one thing you should note about this is that, in the deleted paragraph 18, the OECD refers to “facts and circumstances” twice: one time in relation to whether a “home office” is at the disposal of an enterprise and the other in relation to whether the enterprise requires the individual to “carry on the enterprise’s business” from home.
We then jump to the new heading in the Commentary to Article 5 of the Model titled Cross-border working from a home or other relevant place. This is a set of twenty-one paragraphs (44.1 to 44.21), the last of which is composed of five examples. In those new paragraphs, you will find the following:
- Home office or “other relevant place”. This new section of the Commentary applies to what the OECD refers to as the individual’s home or some “other relevant place”. A “home” is the individual’s home, or maybe their second home, pursuant to paragraph 44.1. Examples of the “other relevant place” include a holiday rental or the home of a friend or relative, but, more to the point, anywhere that is neither (a) the premises of the enterprise, nor (b) the premises of another enterprise with contractual or other connections to the enterprise such as “a customer, supplier or associated enterprise.” If you work in one Contracting State for an enterprise in the other Contracting State and your place of work is described above, this section is for you.
- A home is under the control of the individual. This feels a bit out of place, but it is a remark made by the OECD in paragraph 44.2, that “most homes […] have a greater degree of connection to, and are under the control of, the individual.” This would certainly not apply to many “anywhere offices”, like cafes, malls, and coworking spaces. The key thing is that anywhere offices are not places of business “at the disposal of the enterprise,” or at least not in the traditional sense.
- The first part of the test: a 50% threshold. If an individual uses their home or another relevant place to work for the business of an enterprise, that place “would generally not be considered a place of business of the enterprise if the individual worked from that [place] for less than [50%] of their total working time for that enterprise over the course of any twelve-month period commencing or ending in the fiscal year concerned.” Paragraph 44.8 says that exceptions to this “are not anticipated to occur in most situations”, but the fact that the paragraph even hints at exceptions is noteworthy – I have no doubt that tax authorities and courts will be attentive to this part of the text.
- The second part of the test: a commercial reason. Finding out whether someone meets the 50% threshold (and is therefore a potential PE) is only part of the solution. We then need to look into the activities performed by the relevant individual to find out whether those have “a commercial reason”. Mark my words, this term will be the linchpin of PE-related litigation for years to come. In paragraph 44.11, the OECD calls it “a prominent consideration”, and it says that a commercial reason will exist if the physical presence of someone in the relevant State facilitates the business of the enterprise, “such as where there are people or resources in that State to which the enterprise needs access for the performance of its business activities.”
A quick aside on the 50% threshold: it is simpler for tax administrations and taxpayers to apply, no doubt, but the final part of paragraph 44.8 still opens the door to audits and challenges over the real substance of the individual’s work. Suppose someone spends 80% of their time working on a company’s premises in one Contracting State. A big project then comes up in the other State, so they travel there and spend the rest of the year working from a rented place near a key client. That work produces a signed contract and a huge inflow of revenues, without which the business would have been in serious financial trouble. I don’t know about you, but those 20% are looking very 51%-ish to me right now.
To be clear, the 50% threshold is better than a facts-and-circumstances kind of analysis of each case of remote work between two Contracting States. My point is that, as always, OECD members and non-members can interpret the Commentary in their own individual ways, which may lead companies to do some treaty shopping depending on how local authorities view this subject. I have written in the past that courts should be invited to harmonize their precedents on international tax matters via a process that gives them visibility and fosters the exchange of ideas. My proposal, called the “Database of Approved Precedents”, was focused on BEPS Action 6, but it could work as a solution for any issue within treaty-related audits and disputes.
Israel reserved its right to apply the 50% test by using the greater of two ratios. Either (i) a comparison between (i.A) the number of full/partial working days present in the [State] in which the home or other relevant place is located (“home State”) and (i.B) the number of full working days outside of the home State, or (ii) a comparison between (ii.A) the number of full/partial days actually worked from the home State and (ii.B) the number of full days actually worked outside of the home State.
As for the “commercial reason” test, before we get to reservations, here is a list of what the OECD says is enough of a commercial reason to qualify a remote workplace as a PE:
- Facilitation of direct engagement. Pursuant to paragraph 44.12, “[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.” “Facilitation” is a rather low bar. Yes, a PE is nothing but a “fixed place of business”, but “facilitation” invites tax authorities to play a game of “what if” with the taxpayer’s business. What if instead of being visited by someone in their own country, the client had been visited by a director from the supplier’s headquarters abroad? Would that have been an obstacle to the sale to that client? Importantly, “intermittent” or “incidental” engagements are not sufficient evidence for authorities to conclude that the individual is working remotely for “a commercial reason.”
- Still on “facilitation”. Paragraph 44.17 says that a commercial reason “may exist” if any of the activities in a sample list “take place and are facilitated […] by an individual working from a home or another relevant place in [the] other State.” Some of these are expected: meetings, “cultivation of a new customer base”, “managing relationships with suppliers”, and also the “performance of services” that require a physical presence (like training or repair services “performed on the premises of the customer”). Others are a bit abstract, like the “identification of business opportunities”, or “interaction with employees or other personnel”. The one that really caught my eye was “the real-time, or near real-time, interaction with customers or suppliers in different time zone(s).” The OECD gives as examples a call-center, virtual IT support or virtual medical services. How “near” is near enough? Maybe plus or minus one hour? Plus or minus two hours?
- Does not need to have a “productive character”. Paragraph 44.13 is tied to paragraph 7 of the Commentary to Article 5, which says that a place of business can be a PE even if it does not directly contribute to the profits of the enterprise. Importantly, paragraph 7 also says that if a place has a “productive character”, that is not in and of itself enough of a reason to call it a PE.
- Reducing costs or retaining the individual is not “a commercial reason”. Self-explanatory. If an enterprise only allows the individual to work remotely because it wishes to reduce rental or utility costs, then it follows that the presence of the individual wherever they are working is not justified by a commercial reason. Similarly, if the individual is unable to move or refuses to do so but the enterprise hires them and allows them to work remotely anyway, that does not qualify as “remote work for a commercial reason.”
- “Facts and circumstances”. The OECD says in paragraph 44.21 that Article 5(1) must be applied “based on the facts and circumstances of each case”. In paragraph 44.19, it says that without a commercial reason, a home office or anywhere office will not be treated as “a place of business of the enterprise”, but “facts and circumstances [may indicate] otherwise.” So a home office that meets the first part of the test but not the second may still be qualified as a PE. The OECD does not explain this exception in detail.
A lot of this is paint-by-numbers tax policy, and I mean it in the best possible way (if there is one). If a company knows that intermittent engagements are an argument in its favor to disqualify a remote worker as a PE, would it not ensure that those engagements are provably, defensibly intermittent? Would it not ensure that people working on the premises of the enterprise are also involved in negotiations, so as to minimize the role of any one remote worker in the jurisdiction of the client? And you could dodge a PPT kind of rule, if a local tax authority wishes to apply it (e.g., claiming that Article 7(1) is a tax treaty benefit in relation to the source jurisdiction), in many different ways. You could devise an internal client relationship policy that ensures the participation of employees in different places, not just in the jurisdiction of each client. You could set up a fancy studio in your headquarters, buy the best Zoom license you can afford, just to make communication with the client as clean and as “close to real life” as possible, without ever disclosing that your true intention is to avoid a PE qualification in other Contracting States.
I could go on. Internal policies are a great place where you can plainly state that the main reason you offer remote work is to attract and retain the best talent anywhere in the world. You can use your social media channels to highlight stories of employees who work from a vacation home in Athens, Cape Town or Tokyo, or of those who care for elderly family members. In every post, you can emphasize that this flexibility is a core value of the enterprise. Again, your true intention may well be to avoid a PE qualification, but there are plenty of perfectly defensible ways to dress it up as something else.
Going back to Israel, the country reserved its right to expand the definition of “commercial reason” even further, saying that it would exist where a number of employees are located in the Contracting State in which the home or other relevant place is located “creating a meaningful group relative to their business unit.” Israel also says that even if a commercial reason for a home office is not deemed to exist, its tax authorities will “take account of circumstances whereby the individual is employed to perform activity that is ‘core’ to the business or activity that significantly contributes to value creation for the enterprise.”
This is quite aggressive. If the person working abroad is what Israel calls “one of the primary persons of an enterprise, such as a founder, partner or relatively significant senior executive”, they will be treated as a PE regardless of what they do (and good luck trying to define what a “relatively significant senior executive” means – imagine if the mere transfer of an employee to a remote workplace in Israel means that they must lose their title, if it is a high-ranking title in the company, just to avoid suspicion). Israel even says that quarterly visits to a client, which the OECD refers to in Example D of paragraph 44.21 as “intermittent or incidental”, may be indicative of a commercial reason for the presence of an individual in a Contracting State (if it facilitates those visits or enables the individual to “provide services in a different time zone”).
The Czech Republic reserved its right not to apply the parts of paragraphs 44.1 to 44.21 that refer to “the category of premises involved” (meaning that it also wishes to consider the PE qualification of home or anywhere offices using more flexible, perhaps subjective criteria). Chile stated that it does not adhere to “all of the interpretations” in paragraphs 44.6 to 44.21, which does not mean that it does not agree with the premise that a home office can be a PE (paragraphs 44.1 and 44.2 state it as a general principle). Also, this does not mean that Chile cannot apply parts of the tests referenced by the OECD in paragraphs 44.6 to 44.21 – all that the country stated was that it does not adhere to “all” of the interpretation provided by the Organization in them.
As for the positions of non-members, India simply reiterated its statement (but now in relation to paragraphs 44.1 to 44.21 of the Commentary) that an individual’s home “can be considered as being at the disposal of the enterprise” and is therefore a potential PE under Article 5 of the Model. This is even more aggressive than the position of Israel, but it is not a surprise. India has been a vocal proponent of more flexible PE qualification rules under Article 5 for some time (and you can find some of its positions reflected in the main text of the UN Model).
Finally, Nigeria and Malaysia also stated their positions on the new section of the Commentary to Article 5. Malaysia says that it reserves its right to negotiate the 50% threshold with its treaty partners. Nigeria agrees with Israel in relation to Example D and says that intermittent or incidental visits of a local worker to a client can qualify it as the PE of a non-resident enterprise (if the activity lasts longer than 6 months). Importantly, though, Nigeria considers that cost reduction is a valid reason and therefore a commercial reason for an enterprise to have a person working in a Contracting State (if their activity in that State lasts longer than 6 months).
Final remarks
First things first, this is not a new clause in the Model. This is Commentary that applies to Article 5, and especially Article 5(1), of many OECD-based tax treaties in force today. If your company is part of a multinational group or even if you are not, but you have someone working for you remotely in a treaty jurisdiction, you should devise an internal policy to explain your remote working guidelines to yourself, to tax authorities, and to local courts in the future. Many courts around the world follow the OECD Commentary as if it was a sort of international tax guidebook. So this is relevant today and companies should prepare for audits considering the additions to the Commentary today.
Second, and this relates to an observation I made earlier, this new section of the Commentary to Article 5 is being introduced to a world in which courts (as well as tax authorities) have already issued rulings and/or opinions on the PE qualification of remote workplaces. This requires advisors to engage in a slightly different exercise, because it would be one thing if local tax authorities and courts had never said a word about home offices as PEs. If they have, what you need to do is investigate what parts of their ruling or opinion are (x) confirmed, (y) supplemented, or (z) challenged by the interpretation given by the OECD. In (y) and (z), advisors must consider whether tax authorities or courts will agree with the OECD or stick to their own position (prior modifications of the Commentary and related opinions and rulings may be instructive in that regard).
The last thing I will say about this topic has to do with Latin America. I intend to publish a report about the positions taken by LatAm countries in the 2025 update to the OECD Model (covering other amendments to the Model), but before I do so, I should stress that nothing in the new Commentary to Article 5 is doctrinal. This is specially important for developing countries, because as I explain in lectures about global tax policy, it is often the case that their parliaments and courts will read the Commentary as a source of answers, not just insights. Would it surprise you to learn that several scholars and commentators have published articles about this topic in Latin American journals? Members of LATPF help support our project and can find those articles and many more in our Curated Section, which currently includes links to over 3,000 articles published in over 150 LatAm journals. You can become an individual member via this link or an institutional member (e.g., a law firm, a think tank, a business group, a university) by sending us an e-mail at latpf@latpf.org.
¹. Lucas de Lima Carvalho is the founder of the Latin American Tax Policy Forum. He is based in São Paulo, Brazil.
². See OECD. The 2025 Update to the OECD Model Tax Convention. Paris: OECD, 2025.
³. Id., p. 38-42.
⁴. Id., p. 54-57.
⁵. Id., p. 58-59.
⁶. Id., p. 20.
⁷. Id., p. 19-29.
⁸. Specifically the new Article 5A, approved as an amendment to the UN Model Tax Convention in March 2025. For further insight, see MICHEL, Bob. How the UN Model Tax Treaty shapes the UN Tax Convention behind the scenes. Tax Justice Network, published on July 9th, 2025.
⁹. See similar remarks about paragraph 81 of the Commentary to Article 1st and paragraph 14 of the Commentary to Article 7 of the OECD Model Tax Convention in CARVALHO, Lucas de Lima. Revisiting the Similarity between CFC Rules and the IIR. Tax Notes International, Volume 113, Number 5. Falls Church: Tax Analysts, 2024, p. 604-605.
¹⁰. See UN. Vienna Convention on the Law of Treaties. Vienna: UN, 1969 (republished in 2005), p. 12-13.
¹¹. Id., p. 11 (Articles 26 and 27).
¹². See CARVALHO, Lucas de Lima; and FALKOWSKI, Larissa. The “Principal Role” of Social Media Influencers as PEs. Tax Notes International, Volume 104, Number 8. Falls Church: Tax Analysts, 2021, p. 875-887.
¹³. See CARVALHO, Lucas de Lima. Fraudulent AI as an Agent PE. Tax Notes International. Volume 14, Number 5. Falls Church: Tax Analysts, 2024, p. 707-709.
¹⁴. See OECD, supra note 1, p. 13.
¹⁵. Id., p. 14.
¹⁶. Id.
¹⁷. Id., p. 15. The 50% threshold may have its origin in a 2023 agreement made between Belgian and Dutch tax authorities on the criteria for qualifying a home office as a PE (under the treaty between the two jurisdictions). See LOYENS & LOEFF. Permanent establishment risk linked to home offices. Written by Aldo Engels and Mesude Kilic, dated May 30, 2025.
¹⁸. See OECD, supra note 1, p. 15-16. The fact that the OECD calls this “a prominent consideration” as opposed to the second part of a two-part test is telling. My guess is that this was the original proposal (a two-part test), but members were so concerned with the breadth of “a commercial reason” that the paragraph had to be watered down to accommodate their views (and reduce the number of reservations to it).
¹⁹. Id., p. 30-31 (paragraph 220).
²⁰. Id., p. 16.
²¹. Id., p. 16 (paragraph 44.14).
²². Id., p. 16-17.
²³. Id
²⁴. Example E in paragraph 44.21 is specifically linked to this type of activity. Id., p. 19.
²⁵. See OECD. Model Tax Convention on Income and on Capital. Paris: OECD, 2017, p. C(5)-3.
²⁶. See OECD, supra note 1, p. 16 (paragraphs 44.15 and 44.16).
²⁷. Id
²⁸. Id
²⁹. Id., p. 31 (paragraph 221).
³⁰. Id., p. 31 (paragraph 222).
³¹. Id., p. 31 (paragraph 223).
³². Id., p. 31 (paragraph 224).
³³. Id., p. 31 (paragraph 225).
³⁴. Id., p. 31 (paragraph 226).
³⁵. Id, p. 66-67 (paragraph 55).
³⁶. For instance, the insurance PE clause in Article 5(6) of the UN Model, which is the topic of one of India’s positions stated in the OECD Model. See UN. United Nations Model Double Taxation Convention Between Developed and Developing Countries. New York: UN, 2021, p. 13. See also OECD, supra note 24, p. P(5)-6.
³⁷. See OECD, supra note 1, p. 68 (paragraph 61).
³⁸. Id (paragraphs 58 and 60).
³⁹. Id (paragraphs 59).
⁴⁰. See BIRD & BIRD. “Home office in Germany as permanent establishment?” – German tax authorities comment on the topic for the first time. Written by Thomas Schmidt and Julian Straßel, dated May 24, 2024. See also INTEGRA INTERNATIONAL. Home Office does not constitute Permanent Establishment for an Employer in Poland. Written by Ewa Suwińska, dated August 20, 2024. Furthermore: HANSEN, Søren Friis. Denmark: Did an employee’s Home Office constitute a Permanent Establishment? – Article 5(1) of the Denmark/Germany Tax Treaty. In: ESSERS, Peter; KEMMEREN, Eric; KOFLER, Georg; LANG, Michael; ÖNER, Cihat; OWENS, Jeffrey; PISTONE, Pasquale; RUST, Alexander; SCHUCH, Josef; SMIT, Daniel; SPIES, Karoline; STARINGER, Claus; and STORCK, Alfred. Tax Treaty Case Law Around the Globe 2021. Amsterdam: IBFD, 2022, p. 63-66.
⁴¹. See, for instance, PIGNATARI, Leonardo Thomaz. International mobility of work and its tax challenges. Revista Direito Tributário Internacional Atual, Volume 14. São Paulo: IBDT, 2025, p. 179-198. See also RODRÍGUEZ, Francis Jean Pierr Sebastian; and MENDOZA, Nathaly Jussara Gamboa. El tratamiento tributario de los nómadas digitales: análisis comparativo y desafíos en la economía digital. Tributos y Aduanas, Año 2, Número 3. Lima: SUNAT, 2025, p. 51-67. Furthermore: RIGONI, Gabriela. Trabajo remoto y sus implicancias en la relación jurídica tributaria. Revista Debates Interuniversitarios, Año 1, Nº 1. Buenos Aires: Universidad de Buenos Aires, 2025, p. 465-471.