In November 2025, the OECD approved an update to its Model Tax Convention to adapt it to the new reality of teleworking. One of the central points is clarifying in which cases cross-border teleworking can create a permanent establishment (PE) for the foreign employer. Although Article 5 of the Model (definition of PE) remains unchanged, the Commentary has been expanded with a new framework specifically addressing teleworking.
Before this update, there were gray areas regarding whether teleworking from home could constitute a PE. The previous Commentary suggested that intermittent or incidental presence at the employee's home did not constitute one, while continuous and mandatory use of a home office could, leaving many intermediate cases without clear guidance. In response to the rise of international remote work and to provide greater certainty, the OECD added new paragraphs 44.1 to 44.21 to the Commentary on Article 5. Section 5(1) of the Model provides detailed guidance for determining, on a case-by-case basis, whether an employee's domicile constitutes a permanent establishment (PE) of the nonresident employer.
OECD 2025 Criteria: 50% Threshold and Business Purpose
The Commentary reaffirms that the fact that an employee works from their home in another country does not automatically imply the existence of a PE for the employer. It all depends on a factual analysis: it is necessary to assess the regularity and significance of the activity carried out from that location and require an intensity and permanence similar to that of any office or business facility.
Time threshold (50%): The OECD introduces an objective presumption based on time. If an employee works remotely for less than 50% of their total working time for the company from their home abroad over a 12-month period, it is presumed that this address is not a permanent establishment (PE) of the employer in that country (sporadic remote work is insufficient). Conversely, if at least 50% of the annual working hours are performed from home in another country, then that address may be considered a place of business for the company, subject to analysis of the other circumstances of the case.
Business reason (business necessity): Once the time threshold is reached, there must be a genuine business reason justifying the employee's physical presence in that country. In other words, the employee's location must be due to a business need in that territory (serving local clients or projects, collaborating with suppliers, accessing a market, etc.). If teleworking abroad is permitted solely for the employee's personal convenience or due to internal decisions unrelated to the local market, the commercial purpose requirement will not apply, and therefore, no permanent establishment (PE) will be created.
Dual cumulative criteria: Both requirements—the time threshold and the commercial purpose—must be met simultaneously for a PE to arise. Neither insufficient permanence on its own nor prolonged presence without a business need is sufficient to establish one. Only when an employee teleworks regularly and this situation serves the company's commercial interests in the State where they reside will their domicile be considered a fixed place of business for the company in that country (meeting the definition of a PE in Article 5(1) of the Model Tax Convention). Accordingly, merely occasional international teleworking will not create a PE; whereas substantial teleworking in another State aimed at developing local business may.
From an interpretative standpoint, the OECD's new guidelines are expected to have an immediate impact on the application of existing double taxation treaties. While these are changes in the Commentary, it is highly likely that tax authorities and courts will adopt these clarifying criteria when interpreting current treaties on permanent establishments (PEs) in the context of teleworking. In fact, the OECD itself indicates that the 2025 amendments are an evolution of existing principles, designed to reflect modern work arrangements and provide greater certainty regarding when working from home will or will not give rise to a PE.
The main practical effect is that companies with remote staff abroad will need to review their internal policies to identify tax risks, properly document the circumstances of teleworking, and justify whether or not there is a business interest in the employee's location. Ultimately, this new interpretation will require greater diligence in managing cross-border remote work and assessing the potential tax impact in each jurisdiction.
All of this leads us to conclude that the 2025 update to the Commentary on the OECD Model Tax Convention represents an interpretative milestone in this area, establishing guidelines for interpreting when international teleworking can give rise to a permanent establishment. The combination of an objective threshold for permanence and the requirement of a business purpose provides a technical framework that clearly defines the circumstances under which a non-resident employer can be considered to have a permanent establishment for tax purposes. In this new scenario, companies must strengthen their controls over remote work arrangements, anticipate risks, and adjust their international operations to avoid unintended tax consequences. The management of teleworking thus ceases to be a mere labor or organizational matter and becomes fully integrated into international tax planning.