Navigating permanent establishment risk in a remote work era

Introduction

Remote working increased significantly during the COVID-19 pandemic and has since become a long-term feature of today’s working environment. Global workforce mobility remains a key issue for multinational groups, driven by the need to retain talent and adapt to employees’ growing expectations for flexibility. This evolution has not only reshaped expectations around where and how work can be performed but has also required organizations to rethink workforce strategy, internal governance, and compliance processes¹.

Cross-border remote working arrangements do, however, come with tax and administrative challenges across multiple areas, including corporate income tax (such as permanent establishment (PE), transfer pricing, and tax residence considerations), individual income tax, social security and employment law. In an attempt to provide greater clarity on PE risks related to remote working, in November 2025, the OECD released its update to the Commentary on the Model Tax Convention (MTC). One of the most significant developments in the update is changes to the Commentary to Article 5 of the MTC concerning the concept of a PE. Rather than rewriting the definition of a PE by amending the MTC², the OECD has opted to embed in the Commentary new temporal and commercial‑rationale indicators within the existing fixed place of business framework. The update introduces key, non-exhaustive indicators and examples to consider when assessing whether an employee’s home or another remote location in a different jurisdiction than the one where the employing company is located may constitute a PE. In particular, the revised Commentary introduces a temporal test to determine whether remote working arrangements could trigger a fixed place of business PE for the enterprise.

As such, a cross-border home office or another relevant place will generally not be considered a fixed place of business for the enterprise if the individual uses it for less than 50 percent of their total working time. The 50 percent threshold is measured over any 12-month period and is determined by the individual’s actual conduct, rather than by reference to the formal contractual terms. Whilst generally reassuring, this implies that there may be instances when exceptions to this general rule could occur, depending on the facts and circumstances of each arrangement. The importance of a factual analysis is further emphasized in the related examples.

If the 50 percent threshold is exceeded, the assessment will depend on the specific facts and circumstances and will evaluate whether there is a commercial reason for the cross-border home working arrangement, such as facilitating business with local customers or suppliers. This is typically the case when the enterprise needs the individual to be in that jurisdiction and would otherwise provide or rent business premises in that state. Assessing whether a commercial reason exists requires an examination of the nature of the enterprise’s business and of how the specific activities of the individual relate to that business. For more details on the revised Commentary and related examples, please refer to a KPMG International tax alert.

While the Commentary provides helpful clarifications, jurisdictions remain free to determine the extent to which they rely on OECD guidance when interpreting their domestic tax rules and bilateral tax treaties. Furthermore, a number of issues remain unresolved, with various potential responses having been brought forwarded by interested stakeholders during an OECD public consultation in December 2025. Key insights from KPMG's response to the public consultation include the need for clearer guidance on PE risks, profit attribution, and the transfer of functions; greater consistency across jurisdictions; and the value of dispute prevention mechanisms. In our view, addressing these issues is critical for supporting cross-border business operations and reducing unnecessary compliance burdens

In this context, KPMG³ has set out to better understand how jurisdictions interpret and apply the concept of PE in relation to cross-border remote working, including in light of the 2025 MTC Commentary. In March 2026, KPMG’s EU Tax Centre conducted a survey of KPMG Member Firms in 63 jurisdictions across the globe (Member Firms)⁴. This exercise built on a 2023 survey on PE and tax residence risks arising from cross-border remote working arrangements and reflects the views and practical experience of KPMG member firms, based on their understanding of applicable rules, administrative practices, and interactions with tax authorities in their respective jurisdictions.

This article is the first in a two-part series published in May 2026.

Part 1: examines the interpretative framework for assessing PE risk in a remote work context and the relevance of the OECD MTC Commentary under domestic law and tax treaties. Part 1 of the article also looks at the expected impact of the 2025 revised OECD MTC Commentary at and whether the responding KPMG Member Firms expect new elements such as the 50 percent threshold to operate as practical safe harbours in their respective jurisdictions or whether the respondents’ view is that tax authorities are likely to continue to apply a primarily facts-and-circumstances analysis.
Part 2: of this series will focus on the practical aspects of assessing PE exposure arising when employees work from home from a different jurisdiction than that of their employer. It will cover both fixed place of business PE and agency PE⁵ concepts, including scenarios involving digital nomads, as well as compliance and enforcement considerations. The analysis will draw on the experience of responding KPMG Member Firms with the criteria used when assessing whether a PE exists, whether guidance has been issued by the local tax authorities, any positions consistently taken by tax authorities on remote work-related PE exposure, the resulting tax compliance obligations, and the consequences of non-compliance. Furthermore, the survey also investigates how cross-border remote work affects company tax residence, particularly the determination of effective place of management when executives work from different jurisdictions.

Permanent establishment under domestic law

Relevance of the MTC Commentary when assessing PE under domestic law

Key insight: the OECD MTC Commentary is used as a source of interpretation when assessing PE exposures under domestic rules in 68 percent of the survey jurisdictions (i.e. 6 percent via Tax Code provisions and 62 percent via domestic rules applied through administrative practice, guidance or case law), particularly across Europe and the Americas. As expected, its influence is noticeably weaker across regions that generally follow the UN model or favor alternative nexus concepts.

In addition to understanding the relevance of the 2025 update when interpreting bilateral tax treaties, as explained below, the survey also looked at the extent to which the OECD MTC Commentary influences the PE analysis under domestic law. The question asked referred to the relevance of the OECD MTC Commentary in general, without a specific reference to the 2025 update.

As mentioned above, the survey confirms that in most jurisdictions the OECD MTC Commentary is relevant when interpreting domestic PE concepts. The responses fall into four main categories, as follows:

Express statutory reference

A small percentage of responding KPMG Member Firms – 6 percent, reported that domestic rules in their respective jurisdictions expressly refer to the OECD MTC Commentary in their Tax Code as a formal source of interpretation of the domestic PE concept.
Practical interpretative use

In 62 percent of covered jurisdictions, the OECD MTC Commentary is used in practice to interpret domestic PE rules, primarily through administrative practice, published guidance, or court decisions. This does not necessarily mean that the Commentary is the principal or exclusive interpretative source in all of these jurisdictions, and the degree of reliance can vary between jurisdictions and by reference to the specific provisions being interpreted.
Limited or no role in PE analysis under domestic rules

The remaining 32 percent of responding KPMG Member Firms indicated that the OECD MTC Commentary is not relevant in their jurisdictions for domestic PE assessments. This response reflects a range of situations, including jurisdictions where the domestic PE definition is broader than, or conceptually different from, the OECD MTC – for instance, where it is based on the UN Model, as well as jurisdictions that do not have a domestic PE concept at all.

That said, the impact of the OECD MTC Commentary varies significantly across regions. Jurisdictions place differing levels of reliance on the OECD MTC Commentary, depending on how closely their domestic legislation aligns with OECD treaty concepts and the extent to which they use the PE concept as a basis for establishing taxable nexus. The chart below highlights some of these differences.

In Europe, the OECD MTC Commentary serves as a particularly important interpretative source. Approximately 82 percent of European jurisdictions surveyed indicated that the Commentary is used in interpreting domestic PE rules (i.e., 11 percent via Tax Code provisions and 71 percent via domestic rules applied through administrative practice, guidance or case law). This strong influence reflects the close alignment between domestic PE definitions in many European jurisdictions and the OECD Model. In numerous cases, domestic legislation has been drafted using OECD language, in some instances almost verbatim. Within such frameworks, the Commentary naturally becomes a tool of interpretation. In most of these jurisdictions, the relevance of the OECD MTC Commentary is supported by administrative practice, guidance, or case law. In three jurisdictions, however – Denmark, Romania and the United Kingdom—the domestic tax codes or related preparatory documents expressly refer to the OECD MTC Commentary as an interpretative source.

A small number of jurisdictions reported that the OECD MTC Commentary is not relevant, or plays only a limited role, in interpreting local PE rules. Notable among these is Norway, which does apply the PE concept under local law, but instead relies on a broader notion of ‘business activity’ carried out in, or managed from, its territory.

In the Americas, reliance on the OECD MTC Commentary is generally strong, with approximately 77 percent of surveyed jurisdictions using it as an interpretation source for domestic PE rules. Costa Rica represents a particularly clear example, since its Constitutional Court has recognized the OECD Model as a form of technical regulation for interpreting tax law. Consequently, the OECD Model and its Commentary are expressly applied by the tax authorities when conducting PE analyses.

By contrast, two major jurisdictions in the region – the United States and Brazil, reported that the OECD MTC Commentary is not relevant for domestic PE analysis. In the United States, this reflects the fact that the PE concept is not used in domestic law; instead, non‑residents are taxed on income ‘effectively connected’ with a US trade or business, based on the existence of regular, continuous and substantial activities. In Brazil, the Commentary likewise has no relevance since the country does not have a clear domestic PE definition, apart from certain agency PE rules. Instead, Brazil has historically relied on withholding taxes applied on outbound payments to tax domestic source income.

The ASPAC region presents a mixed picture. Only around 36percent of jurisdictions surveyed use the OECD MTC Commentary as an interpretative tool for PE assessments under domestic rules (based on administrative practice, guidance or case law), whilst 9 percent include a reference to the Commentary in the law. A notable example is New Zealand, where the tax code expressly refers to the OECD MTC Commentary as a source of interpretation. In Australia, local courts have confirmed that the Commentary may be used as a supplementary means of interpretation, and this approach is endorsed by an Australian Taxation Office ruling, which states that it is appropriate to have regard to the Commentary when determining the existence of a PE under Australian domestic tax law.

The ‘Limited or reduced importance’ category includes two of the largest economies in the ASPAC region – China and India. In India’s case, this reflects the absence of a PE concept in domestic law. Instead, India relies on a broader ‘business connection’ test to determine taxing rights. Another jurisdiction in this category is Taiwan, which applies a Taiwan‑source income concept, rather than a PE test, to determine whether a foreign company is subject to corporate income tax in Taiwan.

In Africa & Middle East, reliance on the OECD Commentary is generally lower than in ASPAC and the Americas. 45 percent of the surveyed jurisdictions use the OECD MTC Commentary as a source of interpretation for domestic PE rules. South Africa is, however, one jurisdiction where the Commentary is particularly relevant: a PE is defined by reference to Article 5 of the OECD MTC, and the Commentary is seen as a persuasive interpretative source.

For those jurisdictions where the OECD MTC Commentary has limited or no relevance in the domestic context, one likely reason could be the relatively widespread use of the UN Model in their treaty practice, and the greater relevance of the Commentary to that Convention.

The role of the 2025 OECD MTC Commentary update in PE interpretation under domestic rules

Key finding: As of April 2026, only a small group of jurisdictions have expressed a view on the applicability of the 2025 OECD MTC Commentary update for domestic PE purposes. Official reservations should also be carefully considered.

The second question of the survey examined how jurisdictions that rely on the OECD MTC Commentary as a source of interpretation for domestic PE rules are responding to the 2025 update. As of April 2026, only a limited number of jurisdictions have, to the best of our knowledge, expressed a position – whether formally or informally, on the relevance of the revised Commentary for determining the existence of a PE under domestic law.

Specifically, several jurisdictions have informally indicated that they consider the 2025 Commentary as relevant for domestic PE interpretation. These include Austria, Croatia, Denmark, Malta and Hong Kong (SAR), China. The United Kingdom has gone further by updating its domestic guidance. Based on this guidance, the UK treats the 2025 changes as non‑substantive, viewing them as clarifications on the application of Article 5(1) of the OECD Model Tax Convention in the context of modern working arrangements, and the updated guidance reflects this interpretation.

In jurisdictions that have not yet publicly expressed a position, it is generally difficult to predict how local tax authorities will apply the 2025 update when interpreting domestic PE concepts. An important exception is New Zealand, where the domestic PE definition is expressly treated as applying ‘consistently with’ the OECD Commentary ‘as amended at the beginning of the income year in which [an] enterprise makes [a] supply.’ In practice, this drafting suggests that the 2025 OECD MTC Commentary will only be relevant for income years beginning after the update is published and will not retroactively affect PE determinations for earlier periods. Another exception is Sweden, where the Swedish Tax Agency’s existing domestic guidance on work from home arrangements (Ref: 8‑1677220) is already largely aligned with the 2025 MTC Commentary update. Specifically, the Swedish guidance similarly focuses on whether there are commercial reasons for the arrangement – for example, whether the company benefits from the work being performed in Sweden, whether the employee serves customers in Sweden, and whether there is a connection between the company’s activities and the geographical location.

A distinct category comprises jurisdictions that have formally submitted reservations or stated positions with respect to the remote work paragraphs included in the 2025 MTC update. These include Czechia, India, Israel, Malaysia and Nigeria⁶. As regards Czechia in particular, in addition to its formal reservations on parts of the 2025 update, the Czech Ministry of Finance has also published a communication⁷outlining its position concerning the 2025 MTC update.

Permanent establishment under Double Tax Treaties

Use of updated OECD Commentary in treaty interpretation – dynamic versus static approach

Key findings: the survey shows no prevailing global consensus on the temporal relevance of the OECD MTC Commentary in treaty interpretation. Only a minority of responding KPMG Member Firms reported that their jurisdictions apply either a dynamic (17 percent) or a static (14 percent) approach. Based on the responses received, it seems that most jurisdictions either condition their use of subsequent Commentary on whether changes are merely a clarification (27 percent) or have no clear public position at all (around 42 percent).

The survey also looked at the extent to which tax authorities or local courts take into account subsequent amendments to the OECD MTC Commentary when interpreting PE provisions under double tax treaties extent. Based on Article 32 of the Vienna Convention on the Law of Treaties, the starting assumption was that the OECD MTC Commentary generally serves as a supplementary interpretative tool for treaties based on the OECD MTC. To understand the likelihood that changes made to the Commentary subsequent to the entry into effect of a bilateral tax treaty, the survey asked whether jurisdictions have an official public position on the temporal relevance of the Commentary – i.e., whether they adopt a dynamic or static approach to subsequent amendments.

Tax treaty interpretation in light of subsequent changes to the MTC Commentary

The responses reveal a fragmented landscape, as follows:

Dynamic (ambulatory) interpretation – most recent Commentary is relevant. Around 17 percent of jurisdictions reported that they generally follow a dynamic approach, treating the latest version of the OECD MTC Commentary as relevant for interpreting existing treaties, regardless of when they were signed. In practice, however, the application of the revised Commentary is typically prospective, with new guidance generally expected to be applied from the first relevant fiscal period following its publication rather than retroactively.
Static interpretation – Commentary at the time of treaty conclusion is relevant. By contrast, 14 percent of the responding KPMG Member Firms noted that, based on their knowledge, the jurisdictions where they are based adopt a static approach, relying on the version of the Commentary in force when the treaty (or its latest protocol) was concluded.
Conditional / nuanced approach – clarifications vs. substantive changes. A further 27 percent of in-scope jurisdictions are reported to apply a nuanced or hybrid approach. In these cases, subsequent Commentary is used where it is regarded as a clarification of the original meaning but is disregarded where it appears to introduce substantive changes or new concepts not reflected in the treaty text.
Other approaches / no clear public position. Based on the responses received, it seems that the largest share of in-scope jurisdictions – 42 percent, falls into an ‘Other’ category. In these jurisdictions, there is typically no clear public position issued by the tax authorities, formal guidance or consistent case law on the temporal relevance of the OECD Commentary.

Regional patterns add further nuance, as illustrated in the graph⁸ below. In Europe, a comparatively higher proportion of jurisdictions report using a dynamic approach, with around one‑third generally following the latest version of the Commentary when interpreting treaties based on the OECD MTC. In the Americas, there is a stronger inclination towards the conditional approach, with a significant share of jurisdictions distinguishing between clarificatory and substantive changes.

The role of the new temporal test for remote work in PE analysis

As explained in the introduction of this article, the 2025 revised Commentary introduces a new temporal test to determine whether home office arrangements may give rise to a fixed place of business PE for the enterprise. The survey explored whether, in scenarios where the 2025 revised Commentary applies, the proposed 50 percent threshold can be regarded as a practical safe harbour, or whether PE assessments in remote work situations continue to depend primarily on a comprehensive assessment of the relevant facts and circumstances. Respondents were able to select multiple options, reflecting the possibility that the 50 percent threshold may be considered relevant under both domestic law and treaty contexts, whilst still acknowledging that it may be overridden in light of the specific facts of a given case. Accordingly, aggregate responses may exceed 100 percent.

It is important to highlight that the responses do not generally reflect official positions taken by the tax authorities and often they only highlight the current expectation of how the revised 2025 OECD MTC Commentary could be interpreted locally – based on the practice of the tax authorities, case law and practical experience of the KPMG member firm in those jurisdictions. However, given the lack of clear guidance issued locally in the majority of the in-scope jurisdictions, the approach of the local tax authorities could be inconsistent or could be the subject of future change.

Globally, only 17 percent of in-scope jurisdictions are likely to consider the temporal threshold to operate as a safe harbour under domestic law, whilst 33 percent are likely to view it as a safe harbour in the context of double tax treaties. By contrast, a clear majority of responding KPMG Member Firms (63 percent) indicate that, in their view, PE assessments in their jurisdictions are likely to continue to depend on a case-by-case assessment of the relevant facts and circumstances. Additionally, 19 percent fall within an ‘Other’ category, typically including KPMG Member Firms located in jurisdictions where local tax authorities do not consistently apply specific criteria when determining the existence of a PE.

Part 2 of this article will deal with PE exposure triggered by using a home office (fixed place of business test), agency PE issues, consideration of whether cross-border remote working arrangements are becoming an area of discussion with local tax authorities, compliance obligations that arise when a PE is deemed to exist, the existence of guidance on profit attribution in situations where a PE is created as a result of cross-border remote working arrangements, company residence issues arising from such arrangements, and outstanding issues not addressed by the 2025 update to the Commentary.

¹See on this topic the ”2025 KPMG Global Mobility Benchmarking Report”.

²As per the existing Commentary on Article 5 of the MTC, the term “permanent establishment” is defined as a fixed place of business, through which the business of an enterprise is wholly or partly carried on. This definition, therefore, contains the following conditions:

the existence of a “place of business”, i.e. a facility such as premises or, in certain instances, machinery or equipment.
this place of business must be “fixed”, i.e. it must be established at a distinct place with a certain degree of permanence.
the carrying on of the business of the enterprise through this fixed place of business. This means usually that persons who, in one way or another, are dependent on the enterprise (personnel) conduct the business of the enterprise in the State in which the fixed place is situated.

³KPMG is a global organization of independent professional services firms providing Audit, Tax and Advisory services. KPMG is the brand under which the member firms of KPMG International Limited (“KPMG International”) operate and provide professional services. “KPMG” is used to refer to individual member firms within the KPMG organization or to one or more member firms collectively. KPMG firms operate in 138 countries and territories with more than 276,000 partners and employees working in member firms around the world. Each KPMG firm is a legally distinct and separate entity and describes itself as such. Each KPMG member firm is responsible for its own obligations and liabilities. This comment paper is produced on behalf of KPMG member firms located in the EU forming part of KPMG’s Europe, the Middle East & Africa (EMA) region. Throughout this submission, “we”, “KPMG”, “us” and “our” refer to the network of independent member firms operating in the EU. The information contained herein is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavor to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act on such information without appropriate professional advice after a thorough examination of the particular situation.

⁴Jurisdictions surveyed include the following:

Africa & Middle East: Algeria, Botswana, Cote d’Ivoire, Ghana, Kenya, Mauritius, Mozambique, Namibia, Nigeria, Qatar, South Africa.
Americas: Argentina, Brazil, Canada, Chile, Costa Rica, Colombia, Dominican Republic, Guatemala, Mexico, Panama, Peru, United States of America, Uruguay.
ASPAC: Australia, China, Hong Kong (SAR) China, India, Japan, Kazakhstan, Korea, New Zealand, Taiwan, Uzbekistan, Vietnam.
Europe: Armenia, Austria, Azerbaijan, Belgium, Croatia, Cyprus, Czechia, Denmark, Estonia, Finland, France, Georgia, Germany, Greece, Ireland, Italy, Lithuania, Luxembourg, Malta, Netherlands, Norway, Poland, Portugal, Romania, Spain, Sweden, Switzerland, United Kingdom.

Note that, as per the Diplomatic Service of the European Union, the EU classifies Armenia, Azerbaijan, Belarus, Georgia, The Republic of Moldova and Ukraine as European countries not part of the EU. We have therefore followed this classification for the purposes of this survey. For further details, please refer to: https://www.eeas.europa.eu/eeas/eastern-europe_en

⁵ Agency PE refers to a situation where a PE is triggered by a so-called “dependent agent”, e.g., sales representative or a person who exercises decision-making power on behalf of a company in a different jurisdiction. In addition to the existence of a dependant agent, one of the key conditions for an agency PE to exist is that the activities of the dependent agent are habitually performed, which is typically an assessment of facts and circumstances.

⁶ Israel and Malaysia were not included in the survey; however, they are referenced above for completeness, in light of their updated positions on Article 5 of the MTC and the corresponding Commentary.

⁷ Finanční zpravodaj číslo 4/2026 | Ministerstvo financí ČR

⁸ The source of the graphics included in this article is KPMG’s EU Tax Centre internal survey of the network of KPMG member firms based in Europe (April 2025).