Skip to content The OECD Model Tax Convention is a document that serves as a reference for member countries, providing a starting point and a model for the negotiation and conclusion of bilateral conventions between Contracting States for the avoidance of double taxation.
The 2025 update, incorporating the amendments approved by the OECD Council last November, will be reflected in the forthcoming versions of the Model, both the condensed and the full versions, which are scheduled to be released in 2026.
The core of the reform consists of the additions to the Commentary on Article 5 concerning permanent establishment (paragraphs 44.1-44.21), together with the repeal of certain previous provisions.
In the post-pandemic period, there has been a growing need to take into account, in particular, the tax implications of cross-border remote working. An employee or other personnel who performs work in locations other than those made available by the enterprise, and more specifically in another State, may potentially give rise to a permanent establishment in that State.
While reaffirming a fundamental principle that has always underpinned the analysis in this area – namely that the existence of a permanent establishment must be assessed on a case-by-case basis with reference to the specific facts and circumstances – the newly added paragraphs to the Commentary emphasise that no form of automatism is possible and that all relevant facts and circumstances of the individual case must be taken into account.
Accordingly, the mere use of a place (referred to in the Commentary as “a home or other relevant place”) cannot satisfy the requirements for the existence of a permanent establishment.
In addition to verifying the existence of a place of business, it is necessary to establish a certain degree of permanency. Furthermore, considering the new additions, it must be assessed whether the activities are carried out there with regularity and continuity, for how long within a given reference period, and, finally, whether the place in question is effectively at the disposal of the enterprise for the purposes of its business activities.
One of the most significant innovations is the introduction of a de facto temporal threshold, namely 50% of the total working time for the enterprise as a cross-border remote worker within a 12-month period. Where this threshold is reached or exceeded, this does not automatically result in the existence of a permanent establishment; rather, it triggers the need for a further assessment.
In this subsequent analysis, the newly introduced factor of the “commercial reason” for the activity being carried out in the other State becomes decisive. A commercial reason exists where the presence of the worker in the other State facilitates the enterprise’s business in that jurisdiction, for example because the worker maintains relationships with clients or suppliers, seeks new customers, or where physical presence is required in order to perform specific activities (such as training activities or repair services, etc.).
These elements are complemented by the examples provided in the Commentary on Article 5 which, although not legally binding, are useful for the proper assessment of specific factual scenarios. In particular:
- example A considers the case of the temporary use of premises leased by an employee and used as a place of work for a consecutive period of three months, following a holiday stay in the same State. In this case, the requirement of permanency of the place of business would be lacking. In any event, the mere fact that an individual retains the availability of a place (such as a holiday home) is not, in itself, relevant for the purposes of the analysis;
- example B addresses a situation in which work is performed from a dwelling located in another State for one or two days per week over a 12-month period. The overall time spent working from that location would however amount to 30% of the total working time, a circumstance which, in the absence of other indicia to the contrary, would not give rise to a permanent establishment;
- example C, by contrast, considers the case of an employee of an enterprise of one Contracting State who performs work from his or her home located in another Contracting State for an overall period amounting to 80% of the time in each relevant 12-month period. The regular visits to local clients in order to provide services on behalf of the non-resident enterprise further mean that, in addition to the sufficient degree of permanency, there is also a commercial rationale attributable to the enterprise’s interest in the employee’s presence in the second State. In such circumstances, a permanent establishment would be deemed to exist;
- example D, closely related to the previous one, introduces a fundamental variable: the case of an employee who, while performing work from his or her home located in another Contracting State, satisfies the temporal requirement but, in maintaining relationships with local clients, lacks regularity in visits and contacts, which are carried out on an intermittent and ancillary basis. In such circumstances, a commercial rationale is absent and the employee does not constitute a permanent establishment;
- example E, finally, considers the case of an employee who performs work from his or her home located in another Contracting State for the entire 12-month period under consideration (thus fully satisfying the temporal requirement), combined with the circumstance that the provision of services on behalf of the non-resident enterprise from another Contracting State facilitates work and contacts with clients, allowing the employee to be fully available to clients across different time zones. On the basis of these circumstances, a permanent establishment would therefore be constituted.