The Organisation for Economic Co-operation and Development (OECD) has taken a crucial step towards clarifying one of the biggest tax challenges of the post-pandemic era: the risk that cross-border remote working could create a permanent establishment for the employer in the employee’s country of residence.
The new Commentary on Article 5 of the OECD Model Convention (published on 19 November 2025) provides much-awaited guidance for companies operating with hybrid and global working models. It establishes two tests, a quantitative one, the so called “50% rule”, and a qualitative one, analysing the concept of “commercial reason”, to assess whether an employee’s home (or other relevant personal place) could constitute a permanent establishment of the employer.
As such, the first step is to determine the share of the remote working time. If an employee worked from their home abroad for less than 50% of their total working time in any 12-month period, the location (employee’s home or other relevant place) would generally not be considered a (fixed) place of business for the company.
Only if the employee reached or exceeded the 50% threshold is the relevant place considered sufficiently “fixed” to require a qualitative analysis. In this case, the key is to determine whether there is a commercial reason for the company to have the employee working from another country.
A commercial reason, and therefore a greater risk of permanent establishment for the employer, would exist if the employee’s physical presence in the other state facilitated the company’s commercial activity, performing activities that go beyond preparatory or auxiliary tasks. This includes holding regular physical meetings (more than once a quarter) with customers or suppliers in that state.
Conversely, a commercial reason would not be deemed to exist consequently, lowering the risk of permanent establishment, if the remote working arrangement is implemented solely as a cost-saving measure for the employer or as a concession to retain the employee.
This update is an improvement as it provides companies with a clearer framework for assessing their exposure to the tax risk of a permanent establishment for remote work and the potential adaptation of their flexible working policies.
However, the new Commentary revives the old controversy over its retroactive application, as most double taxation treaties predate its publication.
For this reason, it remains to be seen whether the national tax authorities and courts will apply the principle of dynamic interpretation to interpret the old double taxation treaties with these new guidelines.
Our firm recommends that multinational companies urgently review their cross-border and remote working policies to ensure compliance with these new standards and would be happy to support them with the expert advice of our tax advisors.