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      On November 19, 2025, the Organisation for Economic Co-operation and Development (OECD) published an update to the Commentary on the OECD Model Tax Convention (the “Commentary 2025”).1 The update provides detailed guidance on when remote work arrangements, particularly home offices and other non-enterprise premises, can constitute a “fixed place of business” permanent establishment (PE) under Article 5, and includes discussion of relevant considerations and illustrative examples for evaluating remote work scenarios.

      WHY THIS MATTERS

      Historically, the OECD Model Tax Convention lacked explicit guidance on remote work and the creation of PEs through home offices. The acceleration of remote and hybrid work arrangements has exposed gaps in tax treaty interpretation leading to uncertainty for employers and employees operating internationally. The 2025 update builds on existing principles in an attempt to reflect modern working arrangements, providing additional criteria for determining when an employee’s home (or other “relevant place”) may constitute a "place of business," potentially creating a PE for the employer.

      Background

      Article 5 of the OECD Model Tax Convention defines a PE as a fixed place of business through which the business of an enterprise is wholly or partly carried on. If a remote-work location in a country other than the country of the employer constitutes a fixed place of business PE, the enterprise may be subject to corporate income tax in that country on profits attributable to the PE under applicable treaties and domestic law. Whether a PE is created may also have implications for assessing whether salary and wages of an employee working remotely are subject to tax under the Income from Employment article of a tax treaty with that country. Determining whether a home office or similar location constitutes a PE is challenging, particularly with the increasing prevalence of remote and hybrid work. The 2025 update seeks to provide clearer rules and examples to address these modern work patterns.

      The Commentary 2025 expressly addresses cross-border work performed for an enterprise from places that are not the enterprise’s premises nor the premises of connected businesses, including the individual's home or another place such as a second home, a holiday rental, the home of a friend or relative, etc. Notably, a home or other location used by an employee to carry out activities related to the business of an employer does not automatically qualify as a place of business as there must be a sufficient degree of permanency. Whether or not such a place constitutes a place of business of the enterprise will depend on the facts and circumstances of each case however, the Commentary 2025 introduces a time threshold to assist in this determination. If an individual works from a home or a similar place for less than 50% of their total working time over twelve months, it is generally not considered a place of business. A higher percentage requires further review based on specific facts and circumstances. The existence of a commercial reason for the individual’s activities in the location is pivotal, such as direct engagement with local customers or suppliers. Work-from-home arrangements adopted solely to reduce costs such as minimizing office space expenses do not qualify as a commercial reason for PE purposes. If there is no commercial reason for conducting business activities from a home or similar location in another country, that place is not considered a place of business unless other facts and circumstances suggest otherwise.

      See GMS Flash Alert 2025-232: OECD – Updates to Fixed Place of Business in Remote Work for further analysis and examples.

      KPMG INSIGHTS

      The OECD’s Commentary 2025 is intended to offer greater certainty for global mobility programs. By introducing a time-based threshold and requiring a commercial nexus, the risk of inadvertently creating a PE through remote work is reduced, though not eliminated. Multinational enterprises should carefully track  employee work patterns and document employee activities and commercial reasons for activities conducted outside the home jurisdiction, especially in countries with OECD Model based treaties.

      The updated Commentary 2025 provides a framework but allows for fact-based interpretation. In the case of employees working remotely in the United States for a foreign enterprise or working remotely from a foreign country for a U.S. based enterprise, the specific tax treaty between the United States and that country must be consulted.  Each U.S. treaty is accompanied by a Treasury issued Technical Explanation (“TE”) which serves as an official guide to the treaty’s meaning. Because U.S. treaties are patterned on the U.S. Model, not the OECD Model, the IRS and Treasury view the OECD Commentary as non-binding interpretive and background material when a TE is silent or when both treaty partners expressly agree to follow OECD guidance.

      FOOTNOTE:

      1 OECD: “The 2025 Update to the OECD Model Tax Convention,” adopted, 18 November 2025.

      Contacts

      John T. Seery
      John Seery

      Principal, Washington National Tax – Global Mobility Services

      KPMG in the U.S.

      Christine Deveney
      Christine Deveney

      Director, Washington National Tax – Global Mobility Services

      KPMG in the U.S.

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      The above information is not intended to be “written advice concerning one or more federal tax matters” subject to the requirements of section 10.37(a)(2) of Treasury Department Circular 230 as the content of this document is issued for general informational purposes only.

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