The OECD approved the 2025 Update to its Model Tax Convention (MTC) on 18 November 2025. It is the first update since 2017, and in 2026 it guides how tax authorities read treaties on remote work, natural resource taxation, interest deductions, dispute resolution and information exchange. Here is what you need to know:
- Remote Work: A home or other place is generally not a place of business of the employer if the individual works there for less than 50% of their total working time over any 12-month period. At 50% or more, the answer depends on the facts, with a commercial reason for the individual’s presence as the main test.
- Natural Resources: An optional alternative provision creates a PE once extractive activities exceed a bilaterally agreed period, and gives source countries taxing rights over related capital gains and, optionally, employment income.
- Transfer Pricing: New Article 9 Commentary confirms that domestic interest limitation rules apply after arm’s length pricing, and the Article 25 Commentary now signposts Amount B, the optional simplified pricing approach for baseline distribution activities.
- Information Sharing: Information exchanged under Article 26 can be used for tax matters of persons other than the original subject, with new guidance on taxpayer access and on disclosing non-taxpayer-specific material.
- Dispute Resolution: A new paragraph 6 of Article 25 confirms that competent authorities, through the Mutual Agreement Procedure (MAP), decide whether a tax measure falls within a treaty for purposes of WTO GATS dispute settlement.
These changes reflect a shift in global tax practices, emphasizing remote work, resource taxation, and streamlined dispute resolution. Businesses must monitor local laws and maintain thorough records to manage risks effectively. This includes evaluating offshore asset protection strategies to safeguard wealth against evolving international tax liabilities.
What Changed in 2026
- The update is now part of the Model: The OECD Council adopted the 2025 Update on 18 November 2025, and the OECD has since published the 2025 full version of the Model Tax Convention that incorporates it.
- Positions are on record: India disagrees with the home office time threshold and commercial reason tests. Israel, Nigeria, the Czech Republic and Malaysia recorded their own positions on the remote work guidance.
- More remote work rules are coming: The OECD/G20 Inclusive Framework ran a public consultation on the global mobility of individuals from 26 November to 22 December 2025, with a public meeting in January 2026.
- Amount B is available: Jurisdictions can apply Amount B to fiscal years beginning on or after 1 January 2025, so 2026 is its second year in use where adopted.
Remote Work and Permanent Establishment Rules
When Remote Work Creates PE Risks
The 2025 Update replaces the old home office paragraphs of the Article 5 Commentary, which asked whether a home was “at the disposal” of the enterprise, with new paragraphs 44.1 to 44.21 on cross-border work from a home or other relevant place, such as a second home or holiday rental. The new test asks whether that place is a “place of business” of the enterprise, based on working time and the facts and circumstances.
The key element is a 50% working time threshold. If an individual works from a home or other relevant place for less than 50% of their total working time for the enterprise over any 12-month period beginning or ending in the fiscal year, that place is generally not a place of business of the enterprise. Exceeding the threshold does not automatically create a PE. The Commentary then asks whether there is a commercial reason for the individual to be in that country, such as meeting customers, managing suppliers, serving customers in real time across time zones, or performing services that require physical presence.
Importantly, if remote work arrangements are based solely on employee convenience, talent retention, or reducing office costs, they don’t create a PE. This distinction ensures that companies offering flexible work options for internal purposes aren’t penalized with unexpected tax obligations.
These updated rules provide a clearer framework for addressing remote work scenarios, setting the stage for further discussion on post-pandemic work trends.
Post-COVID Work Trends and Tax Consequences
The guidance also reflects how hybrid work patterns have evolved since the pandemic. By establishing clearer criteria, the updated OECD framework aims to prevent the emergence of minimal permanent establishments (micro-PEs) from routine remote work arrangements that lack substantial business activity.
For a fixed place to qualify as a PE, it must have a degree of permanence. Under the existing Article 5 Commentary, PEs have not been found where a place of business was maintained for less than six months, so short setups like three-month workations or temporary stays in hotels or rentals do not meet the threshold. For those pursuing these lifestyles, understanding tax and residency solutions for digital nomads is essential to avoid unintended liabilities.
Different rules apply where the individual is the only person, or the primary person, conducting the business of the enterprise. The Commentary’s example is a non-resident consultant who runs most of her own consulting business from a home office in another country for an extended period: that home office is a place of business of her enterprise.
Not all countries accept these guidelines. India does not agree with the time threshold and commercial reason conditions and treats an individual’s home as at the disposal of the enterprise, so companies with remote workers in India cannot rely on the 50% test. Israel, Nigeria, the Czech Republic and Malaysia recorded their own reservations or interpretations. Review local rules before approving long-term remote work arrangements.
Natural Resource Exploration and Exploitation (Article 5 Commentary)
Lower PE Thresholds for Extractive Activities
The 2025 Update adds an optional alternative provision for oil, gas and mineral activities. Under it, a Permanent Establishment (PE) is deemed to exist once “relevant activities” in a country exceed a bilaterally agreed period in any 12-month period. The Commentary notes that existing treaties with similar provisions use thresholds of 30, 90 and 183 days, among others. This is a clear shift from the standard 12-month rule for construction and installation projects.
This provision applies to a wide range of activities, both offshore and onshore. It includes specialized services such as seismic surveys, engineering consultancy, and the installation of mining infrastructure. However, auxiliary functions like transportation, towing, anchor handling, and general vessel operations are excluded. Additionally, the update includes an anti-contract-splitting clause, which aggregates time spent across related enterprises to prevent projects from being artificially divided to evade tax obligations.
Expanded Taxing Rights for Source Countries
The optional provision also strengthens the taxing rights of source countries over capital gains from extractive activities. This covers gains from the disposal of exploration or exploitation rights, related immovable property, and shares or comparable interests that derived more than 50% of their value from such property at any time during the 365 days before the sale. This goes beyond the standard OECD Model, where most capital gains are taxed only in the residence state unless connected to immovable property.
The update also introduces optional provisions for taxing employment income. Source countries are now allowed to tax wages linked to extractive activities, even in short-term arrangements that would typically qualify for the standard 183-day exemption. For companies operating in this sector, this means carefully reviewing holding structures and tax liabilities when exiting resource projects. Effective time-tracking for exploration campaigns will be critical to managing tax risks.
Transfer Pricing and Business Profits (Articles 7, 9, 24 Commentary)
Amount B for Routine Distribution Activities
The 2025 Update adds references in the Article 25 Commentary to Amount B, the simplified and streamlined approach for pricing baseline marketing and distribution transactions under the OECD Transfer Pricing Guidelines. Amount B sets returns for qualifying distributors through a pricing matrix, with a range of plus or minus 0.5% around the matrix result.
Jurisdictions can choose to apply Amount B for fiscal years beginning on or after 1 January 2025. A transaction is in scope only if the distributor’s annual operating expenses are at least 3% of net revenues and no more than an upper bound of 20% to 30% set by the adopting jurisdiction. Australia and New Zealand recorded that they can recognize Amount B outcomes for their political commitment through 31 December 2029 for covered jurisdictions with which they have a tax treaty in effect. Because adoption is optional, Amount B applies in some countries and not in others, which raises the need for MAP. Distribution entities should keep documentation that supports both an Amount B outcome and a standard arm’s length analysis.
Thin Capitalization and the Arm’s Length Principle
The 2025 Update also clarifies how transfer pricing under Article 9 interacts with domestic laws on expense deductions, with related changes to the Commentary on Articles 7 and 24.
A key clarification in the update is the distinction between profit allocation under Article 9 and the calculation of taxable income under local regulations. While Article 9 ensures that intercompany transactions are priced at arm’s length, domestic laws may impose limits on expense deductions without requiring corresponding adjustments in the other jurisdiction. This means that domestic thin capitalization rules and interest limitation measures can coexist with treaty-based profit allocation principles without violating Article 9.
As the OECD Commentary explains:
“Article 9 does not deal with the issue of whether expenses are deductible when computing the taxable income of either enterprise.”
This duality can lead to economic double taxation. Compounding the issue, countries differ in how they classify debt and equity. Some jurisdictions use the “accurate delineation” principles outlined in the OECD Transfer Pricing Guidelines, while others – like the United States – rely on domestic judicial doctrines and thin capitalization rules. For multinational companies, this means cross-border financing structures must be evaluated twice: once for compliance with Article 9 and again under local expense deductibility rules. If foreign-owned entities face stricter limitations on expense deductions, companies may need to seek relief under Article 24 (Non-discrimination). These updates highlight the ongoing efforts to create a more consistent framework for handling cross-border tax issues.
Mutual Agreement Procedures (MAP) and WTO / GATS Interaction
Simplified Access to MAP for Tax Disputes
The 2025 update to the OECD Model Tax Convention brings notable changes to dispute resolution, particularly in addressing tax measures tied to trade. A key addition is paragraph 6 to Article 25, which moves guidance on how tax treaties align with the General Agreement on Trade in Services (GATS) from the Commentary directly into the treaty text itself. This shift highlights the growing importance of factoring in GATS obligations when applying tax rules.
The Article 25 Commentary also confirms that a taxpayer can start the MAP process as soon as taxation contrary to the treaty becomes probable, without waiting for an assessment. For example, if a change in a country’s tax law would tax a type of income contrary to the treaty, the affected person can request MAP once the law is amended and the person derives that income, or it becomes probable that they will.
This early access to MAP aligns with clarified rules on how tax measures fit within the scope of WTO/GATS obligations.
WTO/GATS Scope Clarifications
Under the revised framework, a tax measure will only fall under GATS obligations if it is covered by Article 24 (Non-discrimination) of the tax treaty. This means disputes over whether a tax measure violates treaty terms should be resolved through MAP between the treaty partners, rather than through the WTO’s binding dispute resolution system.
This approach keeps tax disputes with tax authorities rather than trade panels. Not every country accepts the new paragraph as drafted. India reserves the right to drop the reference to “any other procedure agreed to by both Contracting States”, and Nigeria reserves the right to replace paragraph 6 with its own wording. Businesses operating in these countries should track local interpretations and be ready to substantiate non-discrimination claims under Article 24.
The Amount B changes to the Article 25 Commentary are designed to preserve optionality in all dispute resolution mechanisms for jurisdictions that do not adopt Amount B.
sbb-itb-39d39a6
Exchange of Information and Confidentiality (Article 26 Commentary)
Information Use and Sharing Protocols
The 2025 update introduces new flexibility for tax authorities in how they use shared data. Now, information exchanged under Article 26 can be applied to tax matters involving individuals or entities beyond the original subject of the request.
This means a tax authority can use data received for one purpose to examine other taxpayers, and it does not need to inform or ask permission from the sending state. Information disclosed about a single entity can lead to audits of other group companies or unrelated parties.
Additionally, the update introduces a new category of “reflective” non-taxpayer-specific material. This includes statistical data, notes, summaries, and memoranda derived from exchanged information. Such materials allow tax authorities to conduct broader analyses and apply insights to administrative purposes.
While these updates expand the scope of data use, they also pave the way for enhanced confidentiality measures, which are detailed below.
Enhanced Confidentiality Protections
Alongside the broader sharing rules, the 2025 Update sets safeguards for reflective non-taxpayer-specific material, such as statistics, notes and summaries based on exchanged information. It can be disclosed to third parties only if it does not directly or indirectly reveal a taxpayer’s identity, and only after the sending and receiving states consult, conclude that disclosure will not impair tax administration and keep a written record.
The Commentary also adds agreed interpretative guidance on when taxpayers can access information exchanged about them.
Businesses should be aware that once information enters the exchange system, it may circulate more freely among tax administrations. This makes it crucial to maintain consistent documentation and positions across all jurisdictions, as data shared in one country could appear in audits elsewhere without additional authorization steps.
These changes aim to balance the expanded use of data with stricter confidentiality protocols, aligning with the evolving needs of multinational tax strategies.
How the Updates Affect Treaty Interpretation and Multinational Strategies
Ambulatory Approaches to Existing Treaties
The 2025 Update is the first update to the OECD Model Tax Convention since 2017. Its effect on existing treaties depends on the jurisdiction. Countries that follow an ambulatory or dynamic approach use the updated Commentary to interpret treaties signed years or decades ago. Countries that follow a static approach interpret a treaty using the Commentary in place when it was signed. As a result, the same treaty provision can be read differently on each side of the border, so confirm both countries’ approaches before relying on the new guidance.
Some jurisdictions have expressed reservations about the new guidance, so it’s essential to confirm local positions before making any operational changes. These interpretative differences pave the way for the strategic adjustments discussed below.
Planning Recommendations for Multinational Enterprises
With these varying interpretations, multinational enterprises need to reassess their strategies. Start by mapping out remote work patterns across your organization. Pay close attention to remote work durations and flag any cases where employees exceed the 50% threshold. Tax authorities are increasingly focused on where work is actually performed rather than the formal terms of employment contracts.
If employees do exceed this threshold, document clear business reasons for their remote work locations. Acceptable justifications include activities like customer meetings, supplier management, or aligning with time zones for operational efficiency. However, reasons like employee convenience or talent retention won’t hold up under scrutiny. Keep detailed records to demonstrate the business benefits of these arrangements.
Review your financing structures in light of Article 9 transfer pricing rules and domestic interest limitation rules. Even if intercompany debt pricing complies with the arm’s length standard, domestic rules on thin capitalization and BEPS Action 4 could still deny deductions. This could lead to economic double taxation, a risk that wasn’t as pronounced under the previous Commentary.
Ensure that tax documentation is consistent across all group entities, as information shared in one jurisdiction can have implications in another. Using the Mutual Agreement Procedure (MAP) early can help avoid double taxation risks. Under the updated guidance, MAP can now be initiated as soon as it becomes “probable” that taxation conflicts with treaty provisions – there’s no need to wait for a formal assessment. If domestic laws conflict with treaty protections, take a proactive approach by engaging with MAP processes.
Conclusion
The 2025 OECD Model Tax Convention update, in force as OECD guidance throughout 2026, changes how multinational enterprises approach treaty interpretation. It brings new guidance on remote work, natural resources, interest deductions, dispute resolution and information exchange.
One significant shift is the separation of profit allocation from domestic deductibility under Article 9, which introduces a new risk of economic double taxation – something not typically seen in earlier interpretations. Adding to the challenge, expanded information-sharing rules now enable tax authorities to analyze data across multiple group entities, making compliance more demanding than ever. This heightened complexity highlights the importance of proactive international tax planning, as outlined in our strategic recommendations.
These updates don’t just alter technical standards – they also influence how treaties are applied in practice. Whether the changes affect existing treaties depends on whether jurisdictions adopt a dynamic or static interpretative stance. Notably, countries like India, Israel, and Nigeria have already expressed formal reservations to some of the key provisions.
The key takeaway: keep up with these changes. Businesses that do not adapt their remote work policies, financing structures and documentation to the new Commentary face higher audit risk and potential double taxation. The Commentary is not binding law, but tax authorities and courts in many countries use it to interpret treaties.
Stay vigilant as global tax regulations continue to evolve.
FAQs
How does the new 50% threshold for remote work affect Permanent Establishment (PE) status?
Under the 2025 Update to the OECD Commentary, a home or other relevant place is generally not a place of business of the employer if the individual works there for less than 50% of their total working time over any 12-month period. At 50% or more, the place is not automatically a PE. The outcome depends on the facts, and the main test is whether there is a commercial reason for the individual’s presence in that country.
This update highlights the importance for businesses to closely track remote work arrangements to prevent unexpected tax obligations in the jurisdictions where employees perform their duties.
How do the updated permanent establishment (PE) rules affect natural resource industries?
The 2025 Update adds an optional alternative provision with a lower permanent establishment (PE) threshold for activities connected with exploring or extracting natural resources. Where two countries include it in their treaty, a non-resident oil, gas or mining company has a PE once its activities exceed a bilaterally agreed period, which can be far shorter than the standard 12-month rule.
The provision applies only once countries adopt it in a bilateral treaty, so check each treaty that covers your projects. Track the duration of onshore and offshore activities carefully, review holding structures for exit gains, and consider advance rulings where the threshold is close.
What impact will ‘Amount B’ have on transfer pricing for routine distribution activities?
The introduction of Amount B is set to simplify how businesses handle transfer pricing for routine marketing and distribution activities. It does so by offering a standardized, matrix-based pricing framework. The goal? To cut down on compliance costs, reduce the chances of disputes, and give businesses more clarity and certainty when it comes to taxes.
By creating a more straightforward approach to pricing routine distribution activities, Amount B seeks to make tax compliance smoother while promoting consistency in how tax treaties are applied.