OECD updates Model Tax Convention for cross-border remote work: 50% time threshold for permanent establishment

The OECD Council approved the 2025 Update to the Model Tax Convention on Income and on Capital on 18 November 2025, with publication the following day. The headline change is a substantially rewritten Commentary on Article 5 (Permanent Establishment) designed to clarify when an employee working from home in one country creates a taxable permanent establishment for their employer in that country.

Twenty new Commentary paragraphs (44.1 to 44.21) set out a working time-based threshold: where an individual works from a home (or similar place) for less than 50% of their total working time over a twelve-month period, that home is generally not considered a “place of business of the enterprise” under Article 5(1). Crossing the threshold does not automatically create a permanent establishment either – the OECD requires a commercial reason linked to the enterprise’s activity (such as engagement with local customers), not mere employee convenience or employer cost-saving.

Why this matters: the change directly affects multinationals engaging cross-border remote workers, and the cross-border remote workers themselves. Where the 50% threshold is crossed in a country where the employee has no contractual workplace, the employer can face corporate tax exposure and withholding-tax obligations in the host jurisdiction. The practical consequence for individual remote workers is that employers now have a clearer (but newly precise) tracking obligation around work-location time allocation. Expect employer policies to harden around the 50% line.

The 2025 update was produced by OECD Working Party No. 1 on Tax Conventions and Related Questions under the Committee on Fiscal Affairs. The package also includes a new Article 25(6) addressing mutual agreement procedure timelines.

What to watch: bilateral tax treaties are updated on individual member-state timelines, so the OECD-guidance-to-treaty-practice gap can run several years. Cross-border remote workers should not assume the 50%-test operates uniformly across their relevant treaty pairs immediately, and should take qualified tax advice before settling into a working-time pattern that straddles the threshold. The OECD’s official 2025 Update page hosts the Commentary in full; the press release frames the rationale.