Tax Updates: November 24th 2025

On 19 November 2025, the OECD published long-awaited updates to the Commentary on Article 5 of the Model Tax Convention, providing clarifications to the concept of permanent establishment when employees work remotely from home in a country or location that is not linked to the employer.
 

Why this matters

With remote work requests on the rise, whether from an employee’s home or another location, businesses have faced significant uncertainty regarding potential tax risks and how to set effective policies. Under the OECD’s newly released guidance, two key factors stand out delivering more clarity on what concerns the issue of permanent establishment of the employer: First, if an employee works from home or from another non-company location for less than 50% of their total working time in a 12-month period, this generally will not create a fixed place of business for the company. Second, even if the above 50% threshold is exceeded, a permanent establishment is not automatically triggered; it must also be shown that the employee’s activities at that location are of a commercial nature.

The abovementioned changes are an evolution of existing principles and ensure the Commentary reflects modern working arrangements, providing additional certainty as to when a fixed place of business permanent establishment will, and will not, be created by an individual working from a home or other relevant place.
 

What are the updates

The 2025 Update specifically amends the Commentary on Article 5 by adding twenty new paragraphs (44.1 to 44.21) that clarify when an individual’s home may qualify as a “fixed place of business” (FPOB) for the enterprise they work for. These new provisions:

• Differentiate between personal versus business reasons for working from a home office abroad, emphasizing that a PE risk arises only when the remote work serves business purposes;
• Reiterate that, for a place of business to be considered a PE, it must be ‘fixed’, requiring a certain level of permanence;
• Introduce a percentage threshold to assess the necessary continuity for the place of business requirement, namely at least 50% of total working time for the enterprise within any 12-month period;
• Highlight that a home office must be established for a commercial reason related to the enterprise’s business in order to be relevant for permanent establishment purposes. This is a key factor in the place of business assessment, with specific indicators provided to guide the analysis.
• Offer five detailed examples to demonstrate when a home or other relevant location is considered ‘fixed’ and may therefore constitute a place of business of an enterprise.
   

KPMG’s insight

OECD’s updates provide a higher degree of certainty and flexibility for businesses managing cross-border remote work arrangements, making this an ideal time for companies to review their policies and guidelines for remote working to promote modern and balanced workplaces. Companies with cross-border remote work arrangements, should consider using this opportunity to review and update their remote working policies to make them modern and balanced also ensuring compliance with the latest OECD standards.