The increasing prevalence of cross-border remote working has raised important questions regarding the potential creation of a permanent establishment (“PE”) for employers. In response, the OECD (Organisation for Economic Co‑operation and Development) has introduced updated guidance in the 2025 update to the OECD Model Tax Convention, providing further clarity on how home working may impact PE assessments.
Background
On 18 November 2025, the OECD adopted an updated Model Tax Convention and accompanying Commentary, including significant updates to the Commentary on Article 5, which addresses the concept of a permanent establishment. These updates reflect modern working arrangements and clarify under which circumstances cross-border home working (or working from another location abroad) may give rise to a PE.
The fundamental requirements for a material (fixed place of business) permanent establishment remain unchanged:
- There must be a place of business of the enterprise;
- That place must be fixed;
- The enterprise must carry on its business wholly or partly through that place;
- No PE arises where activities are purely preparatory or auxiliary.
The assessment of a dependent agent (personal) PE is carried out separately from the analysis of a material PE.
A new practical threshold: the 50% rule
A key development is the introduction of a time-based indicator for cross-border remote work:
- Where an employee works from home or other location in another country for less than 50% of his/her total working time over a 12-month period, that location will generally not be considered a PE of the foreign employer;
- Where the employee works 50% or more of their time from such a location, a further factual analysis is required.
This 12-month period may be any rolling period and does not need to align with the calendar year.
Importantly, even where this threshold is not met, a dependent agent PE risk may still arise.
The decisive factor: a commercial reason
Where employees perform a substantial part of their activities abroad, the key question becomes whether there is a commercial reason for their presence in that country.
According to the OECD, such a commercial reason exists where the employee’s physical presence facilitates the business of the enterprise.
Typical examples include:
- Direct interaction with customers;
- Business development or building a local client base;
- Managing suppliers or key contracts;
- Real-time or near real-time interaction across time zones;
- Access to specific local expertise;
- Collaboration with other businesses or group entities;
- Interaction with other employees or personnel of the group.
Conversely, no commercial reason is assumed where:
- Remote work is allowed solely to retain an employee; or
- The arrangement is driven purely by cost considerations (e.g. reducing office expenses).
Occasional or incidental customer interaction is also insufficient to establish a commercial link.
Case-by-case assessment remains essential
Despite the introduction of clearer indicators, the existence of a PE remains a fact-based, case-by-case assessment, taking into account all relevant circumstances.
Contractual arrangements (e.g. specifying that a significant portion of work is performed “in the field”) may support the analysis, provided that they reflect the actual working pattern of the employee.
Belgian perspective
It should be noted that OECD Commentary does not constitute binding law. However, it plays an important interpretative role.
While Belgium has not formally confirmed the application of the 2025 Commentary, Belgian tax authorities and courts traditionally rely on OECD guidance when interpreting permanent establishment concepts.
Key takeaway
The 2025 OECD commentary provides a more structured framework for assessing cross-border remote working arrangements, in particular through the introduction of a practical 50% threshold and an increased focus on commercial substance. At the same time, the assessment remains inherently fact-driven. A careful review of the specific working arrangements is therefore essential to adequately identify and mitigate potential permanent establishment risks.
How Grant Thornton can support you
Grant Thornton can assist you in navigating these developments through a tailored, pragmatic approach:
- Assessing your existing or planned cross-border remote working arrangements from a permanent establishment perspective;
- Identifying potential tax risks (including both material and dependent agent permanent establishment risks);
- Supporting the documentation and alignment of contractual and operational reality;
- Assisting with discussions or confirmations towards tax authorities where relevant.
We would be pleased to explore this further together and assess the impact on your organization.
