On 19 November 2025, the OECD released the 2025 update to the OECD Model Tax Convention^[1] (OECD MTC), introducing significant enhancements aimed at improving tax certainty and providing clearer rules for governments, taxpayers and advisers around the globe.

The update, approved by the OECD Council, includes new guidance on cross-border remote work, taxation of income from natural resource extraction, transfer pricing and international dispute resolution. These changes reflect evolving global mobility patterns and the increasing importance of digital work arrangements.

Overview of the key updates 25 for Mutual Agreement Procedure (MAP) cases, particularly those involving “Amount B”.

• A new paragraph 6 to Article 25 (MAP) limits the use of Article XVII (national treatment) of the General Agreement on Trade in Services (GATS) in cases covered by Article 24 (any tax matter).
• Updated Commentary to Article 26 (Exchange of Information) confirming that information received through administrative tax assistance may also be used for unnamed persons, subject to agreement between states.

Global mobility: is there a PE?

The 2025 update to the OECD MTC brings welcome clarity to when cross-border remote work may give rise to a PE. The determination of a PE still turns on whether there is a fixed place of business with a sufficient degree of permanency. The interpretation of fixed place and permanency follow the general guidance that was already provided in the Commentary. The list of exclusions for preparatory or auxiliary activities (as set out in paragraph 4) continues to apply, meaning not all remote activities create a PE.

For a PE to arise, the location must genuinely function as a place of business for the enterprise, assessed based on specific facts and circumstances. Key considerations include continuity of use and the existence of a commercial reason for the individual’s physical presence in the state. The OECD provides four illustrative examples in the updated Commentary.

Not merely incidental

The revised Commentary emphasises that activities carried out at home or another location must not be intermittent or incidental. A home office will only constitute a PE if it is used continuously over an extended period.

As a practical threshold, where an individual works from home for less than 50% of their total working time over a 12-month period, the location is generally not regarded as a PE. This determination is based on actual conduct and formal agreements only matter to the extent they reflect reality.

Commercial reason for presence

A place of business requires a commercial reason for the individual’s presence in the jurisdiction. Such a reason exists where physical presence directly facilitates the carrying on of the enterprise’s business. For example, interacting with customers, suppliers, associated enterprises or other stakeholders in that country.

By contrast, if remote work is permitted solely to hire or retain talent, without a business-driven need for presence, no commercial reason exists for PE purposes.

Indicators of commercial reason

A commercial reason may be present where activities such as the following are facilitated by the worker’s presence:

• Meetings between the individual and clients
• Cultivation of a new customer base or identification of business opportunities
• Real-time or near real-time interaction with customers or suppliers in different time zones (for example, call centre services, virtual IT support, or medical services)
• Access to business-relevant expertise (such as meetings with university personnel conducting research relevant to the enterprise)
• Collaboration with other businesses
• Performance of services for clients when those services require physical presence
• Interaction with other employees or personnel of the enterprise or associated enterprises

These factors help distinguish business-driven arrangements from those motivated purely by employee convenience.

Global mobility: next steps

With PE rules for home office clarified, attention is turning to broader global mobility implications. There are complex issues emerging as cross-border and multi-location working grows, including:

• Tax residence of individuals working across multiple jurisdictions
• Allocation and taxation of employment income
• Attribution of profits to PEs created by remote workers
• Interaction between PE rules and teleworking
• Corporate tax residence for executives working abroad
• VAT and social security implications for mobile workforces

It is expected that the OECD will now turn its attention to these issues. The work should be prioritized by identifying the most significant treaty issues arising from these trends, ensuring future OECD work is focused and internationally aligned.

Other updates

Alternative article in Article 5 Commentary (Extractive Industries)

The update introduces an alternative article designed for countries wishing to extend source-country taxing rights in the extractive sector. The provision lowers the PE threshold for qualifying activities and can apply to both offshore and certain onshore operations, subject to clear limitations.

Key features include:

• Flexibility for states to agree on a 30, 90 or 183-day PE threshold.
• Absence of an anti-splitting rule, though the Commentary notes that such protection may arise through the Principal Purpose Test (PPT) (Article 29(9)).
• Coverage of capital gains related to exploration and exploitation rights.

This targeted approach strengthens source taxation for natural resource activities.

Transfer pricing updates

The 2025 update introduces several clarifications aimed at improving transparency and consistency in applying the arm’s length principle (ALP).

Key changes include:

• ALP adjustments (Article 9): Adjustments may only be made where transactions are not arm’s length. Procedural issues such as burden of proof fall under Article 24, not Article 9.
• Intra-group financing: References to Chapter X of the OECD Transfer Pricing Guidelines (OECD TPG) confirm that determining whether a transaction constitutes a loan requires accurate delineation or domestic law analysis before ALP pricing.
• Deductibility: Article 9 does not govern deductibility; this remains a matter of domestic law, though non-discrimination rules may apply.
• Corresponding adjustments: Clarified wording ensures adjustments should reflect only ALP-justified amounts.
• Amount B and MAP: New Commentary aligns MAP procedures with the Simplified and Streamlined Approach (SSA). For jurisdictions not adopting Amount B, competent authorities must rely solely on the remainder of the TPG.

These refinements support consistent, fair resolution of cross-border transfer pricing matters.

MAP and Exchange of Information (EOI)

A significant development is the introduction of Article 25(6), clarifying the relationship between tax treaty dispute resolution and the GATS. Where a tax measure falls under the treaty, disputes must be resolved through MAP, unless both states agree otherwise (thereby avoiding overlapping jurisdiction). Updated Commentary to Article 26 confirms that information obtained through administrative assistance may be used for unnamed persons, subject to bilateral or multilateral agreement.

Conclusion

The 2025 update to the OECD MTC marks a significant step forward in addressing modern tax challenges. By clarifying PE rules for remote work, strengthening source taxation for extractive industries and refining transfer pricing and dispute resolution mechanisms, the update provides much-needed certainty for tax administrations and multinational businesses alike. It also signals the OECD’s ongoing commitment to adapting international tax rules to technological change, digital mobility and the realities of a globalised workforce.

As these OECD workstreams progress and further guidance is released, it is essential that taxpayers closely monitor developments. Changes in treaty interpretation and administrative practice could materially affect tax positions, cross-border structuring, and operational footprints. A&M Tax Alerts will be issued to keep stakeholders informed and prepared for the evolving landscape.

[1] OECD updates Model Tax Convention to reflect rise of cross-border remote work and clarify taxation of natural resources