OECD updates guidance on permanent establishment and remote work
The Organisation for Economic Co-operation and Development (OECD) has updated its Commentary on the Model Tax Convention, providing long-awaited clarity on when remote working arrangements may create a Permanent Establishment (PE) for an employer in another country. These changes reflect modern working practices and offer businesses greater certainty in managing cross-border remote work.
Key principles
- PE assessment is fact-specific and based on actual circumstances during a given period - not hypothetical or future arrangements.
- The guidance applies where an individual works from a location that is not company premises (e.g., a second home or holiday rental), which differs from inter-company transfer scenarios.
New framework
Two main tests underpin the updated guidance:
- 50% working time threshold
If an individual works from a non-company location for less than 50% of their total working time in any 12-month period, that location is generally not considered a fixed place of business. - Commercial reason test
Even if the 50% threshold is exceeded, a PE arises only if there is a commercial reason for the individual’s presence in that country. - A commercial reason requires a clear link between the remote worker’s activities and the employer’s business in that jurisdiction.
Examples of commercial reasons
- Meeting customers or suppliers
- Building a local client base
- Managing supplier relationships
- Accessing local expertise
- Delivering services requiring physical presence (e.g., training, repairs)
Not sufficient: Cost-saving or employee convenience alone; incidental or intermittent engagement.
Summary test
PE risk exists if:
- The place is fixed and used continuously
- The individual works there >50% of total working time in any 12-month period
- There is a commercial reason for presence
OECD illustrative examples
Example | Facts | PE outcome |
|---|---|---|
A | Works 3 months from rented place abroad | Not fixed → No PE |
B | Works 30% from home abroad | Fixed but <50% → No PE |
C | Works 80% from home abroad + meets local clients | Fixed + ≥50% + commercial reason → PE exists |
D | Works 60% remotely, occasional local visits | Fixed + ≥50% but no commercial reason → No PE |
E | Works almost exclusively from home abroad to serve clients in other time zones | Fixed + ≥50% + commercial reason → PE exists |
Implications for businesses
- Temporary remote work rarely creates a PE, but risk increases with time spent abroad.
- Crossing the 50% threshold triggers further review.
- Activities tied to local markets or requiring physical presence may create a PE.
Action points
- Review remote-working policies
- Implement systems to track remote work and require reporting of travel/work patterns
- Document rationale for remote arrangements and clarify permitted activities in host locations
We’re here to help
If you have any questions on the OECD guidance update or want to check your position, get in touch with one of our global mobility specialists via the form below.
