The OECD has released one of the most significant updates in years to the OECD Model Tax Convention. For the first time, it directly answers a question that companies have been wrestling with since 2020: When an employee works from home in another country, does that create a Permanent Establishment for the employer?
If you work in global mobility, payroll, tax or HR, this is an inflection point as the new OECD guidance introduces practical and common sense thresholds that make it easier for organisations to understand when cross border home working is low risk. It does not remove Permanent Establishment risk completely, far from it, however it does give companies far more confidence and clarity when approving Work From Anywhere requests to OECD destinations.
For many teams that have been defaulting to a cautious position because of uncertainty, this update could shift the internal conversation in a more positive direction. If nothing else, it will cause internal corporate tax and legal teams to reconsider what for many companies has been interpreted as an overly cautious approach.
Why Permanent Establishment Risk Is Such A Headache
First, some context. The table above shows the results of our WFA White Paper a number of years ago where we surveyed 120+ companies employing 1.2m+ people globally. Their biggest concern was Permanent Establishment (PE) which you can learn more about here. If an employee’s activities while working remotely in a different country trigger permanent establishment, this has very serious consequences for your company, as it creates a residency for your company in that country, even if you never intended that to be the case.
Up to now, the OECD has provided very little guidance around the topic, which is why this update from the OECD is to be welcomed, as for OECD member countries, their tax authorities will be looking to this model to help inform how they treat the topic of PE locally (and equally in how they frame their double taxation agreements).
Quick Summary of the 2025 OECD Update
So what was included in the OECD update? Below you can find is a high level summary of the changes covered in the OECD update:.
- Home office clarification under Article 5 (this is the one that is most relevant for WFA PE)
- New clarity for dispute resolution under Article 25
- Optional rule for natural resource activities
- Transfer pricing and financial transactions clarification
- Adjustments relating to Amount B and optional approaches for non adopting jurisdictions
- Updates to rules on information exchange under Article 26
The guidance now clarifies how exchanged information can be used and how taxpayers can access information shared between authorities, which is indirectly relevant for WFA as it shows the increasing level of co-operating between tax authorities.
While the update covers many technical areas, the key one to zone in on is the home office clarification as it is by far the most important development for remote work and WFA compliance. Many tax leaders are calling it the most substantive guidance issued on international remote work since post-Covid where there were some temporary relaxation of residency rules due to the circumstances of the pandemic.
International Remote Work Tax Guidance Comes Into Focus
Before this update, the rules around home office Permanent Establishment were vague and difficult to interpret. Corporate tax teams often rejected WFA requests simply because there was no authoritative standard for them to rely on. Everyone was working with a patchwork of local guidance, isolated rulings and internal risk thresholds.
The 2025 OECD update most definitely brings clarity that has been missing for years.
The new commentary to Article 5 sets out the factors that tax authorities should consider when evaluating whether home working abroad creates a fixed place of business, which we will cover below. While it is not a free pass for unlimited international mobility, it is the most employer (and employee) friendly interpretation that the OECD has ever offered.
It also crucially recognises the reality of modern work. Many employees are abroad for personal reasons rather than business reasons, and tax risk should reflect that distinction, at least that is what this guidance is aiming to convey, in principle.
When Do Commercial Activities Create Tax Risk?
The OECD’s updated guidance also provides clearer direction on when an employee’s presence in a country may create tax risk because of the nature of the work being carried out, rather than the number of days alone.
The central question is whether the employee’s location supports genuine business activity, as opposed to being chosen primarily for personal convenience.
Tax risk is more likely to arise where an employee’s work from a location is clearly connected to the company’s commercial operations. This can include situations where an employee:
Meets with customers or clients
Helps win new business or identify growth opportunities
Manages suppliers or supplier relationships
Provides real-time services to customers or partners, such as IT support, call centre services, or advisory work across time zones
Shares specialist knowledge through ongoing collaboration with external partners, such as universities or research organisations
Works closely with other companies on joint projects
Delivers services at a customer site, for example training, installation, or repair work
Regularly interacts with colleagues or staff from the company or related entities
Importantly, the guidance also makes clear what does not, by itself, create tax exposure. Simply having customers or suppliers in the same country as the employee, or working from a different time zone, does not automatically mean the company is carrying on business there.
Where there is no clear business reason for the employee to work from a particular location, the risk of that location creating tax exposure for the employer is generally lower.
Five Key Takeaways From The OECD Guidance
1. Less than half of the working year abroad is generally low risk
If an employee spends less than 50% of their annual working time in another country, then in most cases this will not create a Permanent Establishment. This alone could unlock thousands of previously rejected WFA requests. While individual countries will have their own interpretations, and each case needs to be assessed on its own merits, this guidance does lower the barrier and is likely to lead to more organizations to be somewhat less conservative on their WFA policies.
2. More than half is not an automatic trigger
Even if someone spends more than half of their working time abroad, that does not automatically create a Permanent Establishment. The substance of the work matters far more than the number of days. Activities that genuinely drive business in that market will always carry higher risk.
3. Personal choice matters
If an employee is abroad purely for personal reasons and the company has no operational need for them to work from that country, the risk is generally low. This matches how many companies already assess WFA requests internally, and it is helpful to see the OECD recognise this distinction.
4. A home office is not automatically a fixed place of business
Regularly using a home office does not convert it into a fixed place of business unless it genuinely becomes part of how the organisation operates in that country. This is a higher bar than many assumed and is one of the most reassuring parts of the guidance. Equally it is helpful to recognise that if someone is staying in an Airbnb or hotel (i.e. accommodation of a temporary nature), this further reduces the risk of PE.
5. Tax authorities will look at the overall story
While the points above are helpful, you still need to look at each case on its own merits. Authorities will consider the full picture, including:
- how often the employee works there
- the nature of the activities
- whether the work contributes to business operations in that country
- whether the employer derives any meaningful benefit from that location
This holistic approach mirrors the traffic light logic already embedded in the Work From Anywhere platform.
How Much Does This Change Permanent Establishment Risk Today
The update provides meaningful relief, but it does not magically change the rules overnight. Companies can now make decisions with more confidence, but we cannot emphasise enough that each request still needs to be reviewed based on its facts. The guidance helps, but risk must still be assessed country by country, and case by case.
Will This Directly Reduce Permanent Establishment Risk Right Now? While this does give some clarity, and should be taken into consideration, the honest answer is that we need to see how this plays out.
The OECD commentary is influential, but it does not automatically change local tax law. Each country still needs to:
- review the new guidance
- decide how to interpret it
- update domestic rules or issue clarifications
- reflect the changes in administrative practice
Regardless of how each country interprets it, every WFA request still needs a case by case review.
While the update does signal a more flexible and modern direction, the actual level of risk depends on, amongst many other factors:
- the duration of the time that person is in the country
- their seniority and role type (e.g. senior decision-makers would still be at an elevated risk level)
- what the employee does in that country (e.g. commercial activities carry much higher risk)
- the tax treaty between the two jurisdictions
- how the local tax authority chooses to interpret the OECD commentary
- any existing case law or rulings
- your company’s risk appetite which can vary significantly from company to company
Some countries we suspect will adopt the new interpretation quickly. Others may take months or even years. A few may take a more conservative view. This is why we are monitoring adoption very closely on a country by country basis.
What Companies Should Do Now
1. Share the update with tax and legal teams
Some teams may not be aware of the new commentary yet. Internal alignment is essential, especially if your organisation has historically taken a cautious approach.
2. Review your Work From Anywhere policy
Many policies were written during a period of uncertainty and have become overly restrictive. This guidance allows companies to rethink thresholds, clarify definitions and build more balanced criteria for approval.
3. Continue assessing requests individually
No two cases are identical. Senior roles, revenue generating activities and strategic responsibilities will always carry higher risk. Personal travel and short periods abroad (e.g. < 14 days) will continue to be lower risk in most cases. A structured assessment process is still essential.
4. Track how each country responds
We expect to see updates and clarifications from tax authorities in OECD countries over the coming months. Some will align fully with the OECD guidance. Others may adapt it. A few may maintain their own interpretation. Staying close to these developments is critical.
Our Own Perspective: A Turning Point For Work From Anywhere?
From our vantage point in Work From Anywhere, we believe this is one of the clearest signals yet that international tax standards are catching up with how people actually work today. It creates space for organisations to take a more confident and structured approach to flexibility. It also strengthens the case for robust governance, clear approval workflows and proper documentation, as the need for a case by case review still remains.
For companies that have been cautious or restrictive, this is a moment to rethink the balance between flexibility and compliance. If your company does not have a WFA policy, or sticks to a very limited 10 day WFA policy, then it’s possibly a good moment to reflect and rethink whether such a policy is fit for the years to come.
For employees, it is a sign that the world is moving toward a more practical and modern interpretation of mobility.
We are already helping organisations apply this guidance within their WFA strategy. If you want to see how our platform models these scenarios across different countries and risk profiles, we would be happy to walk you through it.
P.S. If you’d like to access the full text of the OECD update, you can find it here. You can also find a very helpful webinar they did in December 2025 here. We are also organizing roundtables on this in Q1 2026 so if you’d like to join these, or any future roundtables, please reach out to us.
John is Co-founder of Work From Anywhere, a platform to help companies execute a work from anywhere strategy. John is a Chartered Accountant who speaks 6 languages and was previously the senior finance leader of a €4 billion division of FTSE-listed CRH Plc. John and his family are passionate about travelling and his eldest daughter, Rosa, while only 5 years old has already travelled to 25 different countries.
