The 2025 Update on the OECD Model Tax Convention – Focus on the cross border remote work
The 2025 Update on the OECD Model Tax Convention – Focus on the cross border remote work
The OECD has released an update to the OECD Model Tax Convention on 19 November 2025. Except for a new paragraph added to Article 25 (Mutual Agreement procedure), the update only amends the Commentaries.
The new commentaries 44.1 to 44.21 included in the Commentaries to Article 5 (Permanent Establishment, “PE”) are particularly relevant from a Luxembourg standpoint. While insisting on a case-by-case analysis of the facts and circumstances the update provides useful guidance and examples to determine whether an employee working from home abroad may constitute a PE of its employer.
The new commentaries 44.1 to 44.21 included in the Commentaries to Article 5 (Permanent Establishment, “PE”) are particularly relevant from a Luxembourg standpoint. While insisting on a case-by-case analysis of the facts and circumstances the update provides useful guidance and examples to determine whether an employee working from home abroad may constitute a PE of its employer.
A fixed place …
The updated commentaries first acknowledge that the home of the employee or other relevant private place (e.g. holiday rental,…) with no connection to the enterprise present particular issues. Such places would typically not be accessible to other employees of the enterprise. This consideration may be understood in the light of point 10 ss. of the Commentaries on Article 5 (unamended) on the notion of a place “at the disposal” of the enterprise.
As such, the mere use of such home or other relevant private place by an employee to work should not automatically be considered as a PE of the employer. Classic examples of the absence of PE include the use of such place for activities of preparatory or auxiliary character, or the carrying on of business activities on an intermittent or incidental basis.
Interestingly, the updated commentaries take the position that the home or other private place will generally not constitute a PE of the employer if the employee works less than 50% of his working time for the enterprise from such a place.