The OECD has released its 2025 update to the Commentary on the Model Tax Convention (MTC), providing long-awaited clarification on how permanent establishment (PE) rules apply to modern remote work situations.
For companies that grow internationally through an Employer of Record (EOR) model, this guidance is particularly relevant. Remote work and globally distributed teams are now standard practice, yet questions remain about whether an employee working from home in another country could unintentionally create a taxable presence for the engaging company.
The updated Commentary does not change the definition of a PE itself, but it does offer a clearer and more structured framework for assessing when remote work could create PE exposure. As a result, the practical risk is lower in many common EOR scenarios, but it has not disappeared entirely.
Why this matters for EOR arrangements
An EOR allows companies to hire talent abroad without establishing a local entity. The EOR legally employs employees, while day-to-day work is performed for the client company. This setup raises natural questions:
Does the employee’s home office abroad count as the client’s fixed place of business? Could their activities create a PE?
The OECD’s update is helpful for EOR users because it acknowledges that remote work is often driven by personal preference rather than business necessity. Where the employee’s location does not serve a commercial purpose for the enterprise, this significantly reduces the likelihood that their home becomes a PE.
The new Commentary also introduces clearer indicators—such as the employee’s working pattern and the business rationale for their presence abroad—which help bring more predictability to PE assessments. For companies relying on the EOR model, this greater clarity is good news.
A clearer view on when remote work does not create a PE
One of the most practical additions is the OECD’s guidance that if an employee works from abroad for less than 50% of their total working time over a twelve-month period, their home or other location is generally not considered a place of business of the enterprise. Even where remote work exceeds this threshold, a PE typically arises only when the employee’s presence abroad creates a commercial advantage or facilitates business operations in that State.
For many EOR roles—such as employees performing their duties from abroad because it suits their lifestyle, family circumstances, or preferred working arrangement—there is no such commercial rationale. Their location does not help the enterprise access new customers, manage local relationships, or operate more efficiently in a particular market. In these cases, the risk of creating a PE is significantly reduced.
Conversely, if the employee carries out activities that clearly support the development of business in the foreign State—such as regular interaction with local clients or partners—their home office may still be considered a company place of business. The OECD explicitly notes that the determination depends on the facts and not on employment labels or internal policies.
Points of attention still relevant for EOR clients
Although the updated guidance provides more structure and reduces uncertainty, companies using an EOR should remain mindful of the following considerations:
The nature of the employee’s role
Revenue-generating or outward-facing functions carry more PE risk than administrative or supporting activities.
Working pattern
Employees spending most of their working time abroad should be assessed more carefully than those who work abroad occasionally or part-time.
Commercial purpose
If the employee’s location abroad is merely personal or incidental, PE risk tends to remain low. If their presence facilitates business in that jurisdiction, the risk increases.
Local interpretation
While the OECD Commentary is influential, individual countries may apply it differently, especially where treaties are based on older versions of the MTC.
In most day-to-day EOR arrangements, employees work remotely for personal reasons and perform activities that do not create commercial presence in their country of residence. Under the updated framework, these situations generally do not give rise to a fixed place of business PE.
Why professional guidance remains important
Despite the welcome clarity, cross-border remote work still requires careful assessment. Different jurisdictions interpret PE rules differently, and small factual differences, such as an employee’s duties, time spent abroad, or local contacts, can influence the outcome.
Our parent company, Dutchtaxadvice.nl, supports organisations in navigating these questions. They can help assess whether specific EOR or remote-work arrangements may create PE exposure, analyse employee roles and responsibilities, and identify practical adjustments that reduce risk without limiting operational flexibility.
For companies building international teams through an EOR, the OECD’s updated guidance offers a more predictable and workable framework. With the proper support, organisations can leverage global talent while staying aligned with international tax rules.