Permanent establishment through cross-border work
The world of work has changed, and with it the rules of taxation. On November 19, 2025, the OECD published a comprehensive update to its model commentary on Article 5 of the OECD Model Tax Convention. The focus is on the question of when a home office abroad constitutes a permanent establishment and thus triggers far-reaching tax consequences. For internationally active companies and employees working across borders, this brings long-overdue legal certainty, but also new challenges.
The 50 percent threshold as a new guideline
The key change is the introduction of a 50 percent limit for working hours. If an employee works less than 50 percent of their total working hours from a foreign home office within any 12-month period, there should generally be no fixed business facility and thus no permanent establishment of the company. This also applies to activities carried out from second homes, vacation accommodations, or the homes of friends and relatives.
This regulation creates planning security for flexible working models such as “workations” or hybrid forms of work. An employee who occasionally works from abroad for three months or works from their foreign residence one to two days a week does not establish a permanent establishment abroad for the company they work for.
Business reason: The decisive criterion
If home office work exceeds the 50 percent mark, things become more complex. In this case, it is crucial to determine whether there is a business reason for the person to be abroad. The OECD provides specific examples of when such a business connection exists:
- Regular meetings with local customers or suppliers
- Establishing new business relationships in the country concerned
- Providing services to customers in real time across time zones (e.g. call centers, IT support)
- Collaboration with other companies or research institutions on site
- Physical presence required at the customer’s premises (training, repairs)
Working abroad for personal reasons
However, if an employee works abroad solely for personal reasons, for example because their employer allows them to do so for reasons of employee retention or cost savings, or even out of personal preference, the OECD considers that there is no economic reason that would justify a permanent establishment.
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Caution in practical implementation: Some countries want to deviate
As clear as the new OECD guidelines may seem at first glance, caution is advised when it comes to their practical application. The OECD recommends a dynamic interpretation, whereby the latest version of the model commentary should also be used to interpret existing double taxation agreements. However, several countries have already expressed reservations and reject the updated commentary. They want to assume a permanent establishment as soon as home office activities are carried out for the company – regardless of time limits or business reasons. Other countries want to agree bilaterally on the percentage of home office use that remains harmless or reserve the right to make deviating agreements.
And, of course, there are also countries whose national law is generous per se and where the hurdle for establishing a permanent establishment is high. In these cases, the respective double taxation agreement and also the model agreement and the new OECD commentary may not be relevant at all.
WINHELLER provides support with remote work policies
Companies should review their remote work policies and, in particular, document the reasons why employees are working abroad. A detailed analysis of the activities and business relationships in the respective country is recommended, especially for employees who regularly work more than 50 percent of their working hours from abroad. Careful documentation of the reasons – such as personal preferences versus business necessity – can be decisive in the event of a dispute.
Feel free to contact us!
The OECD update is a milestone for modern forms of work – but the devil is in the details. Tax advice is essential, especially for activities in countries with different administrative practices. We are happy to provide you with individual advice. Feel free to contact us for a non-binding offer!
