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On 18 November 2025, the OECD published an update to the Commentary on the OECD Model Tax Convention. This update concerns various provisions of the Model Convention, including Article 5 on permanent establishments. Since the COVID-19 pandemic (2020) and the normalisation of structural remote working, the question has arisen as to the extent to which cross-border teleworking may give rise to a permanent establishment (PE) in the hands of the employer. The recent Commentary seeks to structure and clarify a number of assessment criteria in this regard, in particular with respect to the use of a home office by employees in a State other than that of the employer.
Delimitation of the scope of application
The updated Commentary no longer refers exclusively to the traditional home office in the narrow sense. The OECD deliberately adopts broader wording and refers to “a home or other relevant place”. This makes clear that the analysis is not limited to a separate workspace within a private dwelling but may extend to any location from which an employee habitually carries on the business activities of the enterprise.
In addition, the Commentary emphasises that the assessment must be made on the basis of the facts and circumstances applicable during a specific period, rather than by reference to past or future situations. The analysis is therefore time-specific and fact-based: it focuses on the factual reality during the relevant reference period.
Furthermore, it is reaffirmed that, even where the structural conditions of Article 5 (1) are met, it remains necessary to examine whether the exception for preparatory or auxiliary activities applies. While this principle is not new, it is expressly reiterated in the context of remote working. Where the activities carried on from the home or other relevant place are merely preparatory or auxiliary in nature, no permanent establishment will arise.
The two-step test
The 2025 OECD Commentary introduces a clearer analytical framework for situations in which an employee performs activities from his or her home or another relevant place. This framework is based on a two-step analysis.
1. The 50% criterion
As a first step, it must be assessed to what extent the employee effectively works from his or her home. Where the employee performs less than 50% of his or her total working time (measured over a twelve-month period) from home, that place will, in principle, not be regarded as a place of business of the enterprise.
The 50% criterion does not constitute a formal threshold or safe harbour. Rather, it serves as an indicative benchmark intended to structure the further analysis. Exceeding the 50% threshold does not automatically result in the existence of a permanent establishment but triggers the need for further examination.
Importantly, the assessment must be based on the actual organisation of work and not merely on contractual arrangements. The Commentary stresses that the effective performance of activities is decisive.
2. Commercial reasons
Where the employee works 50% or more of his or her time from home, it must subsequently be examined whether commercial reasons exist for the employee’s presence in that State.
The key question is whether the enterprise has a business interest in the employee working from that specific location. Put differently: if the home were not available, would the enterprise itself need to lease or maintain premises in that State in order to carry on its business activities?
Commercial reasons may, inter alia, be present where the employee’s physical presence on a continuous basis contributes to:
- maintaining or developing client relationships;
- entering or servicing a local market;
- managing suppliers or business partners;
- performing core business activities of the enterprise.
Conversely, the mere fact that clients or suppliers are located in that State is not sufficient. Nor is the existence of a different time zone, in itself, determinative. Where the employee works from home exclusively for personal reasons and the enterprise has no commercial interest in that location, the place will, in principle, not be considered a place of business of the enterprise.
This two-pronged analysis makes clear that not only the quantitative extent of remote working is relevant, but above all the qualitative nexus between the enterprise and the State from which the activities are carried out.
Conclusion
Although the OECD has introduced a clearer assessment framework with its 2025 update, the qualification of a home office as a permanent establishment remains highly dependent on the specific facts and circumstances. The 50% criterion provides guidance but does not constitute a hard threshold. Ultimately, the decisive factor will be whether the enterprise has a commercial interest in the location concerned.
Practice will need to demonstrate the extent to which tax administrations apply these new emphases strictly or with nuance. What is clear, however, is that structural cross-border remote working has become a factor that must systematically be taken into account when assessing permanent establishment risks.
If you would like to receive additional information on this matter or require tax assistance, the RSM Belgium Tax team is at your disposal via tax@rsmbelgium.be.
