The OECD has released its 2025 Update to the Model Tax Convention, including important new guidance on when working from home (or any other relevant place) across borders may create a PE for a business enterprise. A PE arises where an enterprise has a fixed place of business through which its business is wholly or partly carried on. Below you will find an overview of the most significant new guidelines.

A new “50% working-time” indicator

The 2025 Update introduces a helpful benchmark:

• If an individual works less than 50% of their total working time from a home or other place abroad over any 12-month period, that location will generally not be considered a place of business of the enterprise. This concerns where the actual work is performed.
• if the individual works at least 50% from that location in a relevant 12-month period, whether there is a place of business (and thus a PE) depends on the facts and circumstances, where the “commercial reason” is a prominent consideration. This does not automatically mean a PE exists, but the risk increases.

Focus on the “commercial reason”

If the individual works from home or another relevant location abroad at least 50% in a 12-month period, facts and circumstances should be assessed to determine whether a PE exists. When assessing the facts and circumstances, a prominent factor is whether there is a commercial reason for the foreign business enterprise to have the individual present in the other state.

• “Commercial reason” may include, for example, the individual being physically present to access local resources (suppliers, customers, employees), or to facilitate business activities that require presence in that State.
• By contrast, purely cost-saving motives (e.g., employer letting an employee work from home to save on office rent) are not sufficient to create a commercial reason.
• The guidance explicitly states that a commercial reason does not require productive activities: even if the work is not directly revenue-generating, the presence may enable wider strategic business benefits
• The mere presence of clients, suppliers, or associated enterprises in that State does not automatically mean a commercial reason; each case must be assessed carefully.
• The Update contains several examples, which provide an insight as how to determine whether a commercial reason could be present.  

Only core business activities matter

 Even if a location is fixed and used regularly, it will only qualify as a PE if the activities performed there are an essential part of the enterprise’s business. Preparatory or auxiliary tasks do not typically create a PE.

Going forward

 The 2025 OECD Update does not create new law but will very likely influence how countries interpret home-office PE situations under new tax-treaties. The OECD considers the Update to be a clarification of the existing PE concept. From a Dutch perspective, therefore, the updated commentary may also be taken into account when interpreting the PE concept in existing treaty provisions.

As tax authorities increase their focus on cross-border remote work, it is important to be aware that remote working can create a permanent establishment.

We are happy to assist with any questions you may have with respect to the tax effects of homeworking.