During the pandemic I advised a mid-sized engineering firm whose overseas project managers started working from their homes abroad. What seemed like a harmless operational tweak quickly raised a tax question: Could those home offices create a permanent establishment (PE) for the foreign enterprise?
The OECD's 2025 update to the Model Tax Convention directly addresses that modern reality. Paragraph 29 of the Commentary on Article 5 along with practical examples now gives clearer guidance on when a home or other remote workplace becomes a fixed place PE.
What does the 2025 OECD update state?
Simply put, the OECD has clarified that a home or remote workplace becomes a fixed place PE only when it functions as a place of business of the enterprise and is at the enterprise's disposal in a meaningful way.
Key factors to consider
- Degree of control and availability: Is the location made available by the enterprise? If the enterprise requires the employee to use that place and it is used continuously, the risk of PE increases.
- Regularity and continuity of activities: Intermittent use usually does not create a PE but continuous, core business activities are more likely to do so.
- Nature of activities: Administrative or preparatory tasks are less likely to create a PE than core revenue-generating activities.
- Enterprise's provision of the space: If the enterprise provides workspace, equipment, or pays for it, that strengthens the case for a PE.
- Expectation and contractual terms: Written policies or contracts requiring work from that location are relevant evidence of intent.
Practical Illustrations by the OECD
The OECD commentary also provides fact-based scenarios to illustrate how the place of business test applies:
Three months is temporary and lacks permanence.
Time spent is less than 50% of total working time.
Permanent presence and >50% time with clear commercial reason.
Employer benefits from her presence to serve specific time zones.
Home use exceeds 50%, but client meetings are intermittent.
Practical Checklist for Companies
- Document the facts: Keep contracts, policies, and expense records.
- Classify activities: Separate preparatory tasks from core revenue functions.
- Limit enterprise control: Avoid making the home “at the disposal” of the enterprise.
- Consider time thresholds: Sustained presence increases risk.
How to form a defensible position
Focus on four practical questions and keep contemporaneous documentation for each: who provides the space, frequency of use, nature of activities, and enterprise control. No single factor is decisive, but the balance matters.