Thought Leadership

Clarified PE principles for remote work

The updated Commentary expands on how Article 5 applies when an individual performs work from a home office or another “relevant place,” such as a rental property, second residence, or a friend’s home. These places share an important characteristic: they generally are not accessible to other personnel of the enterprise.

The OECD reaffirms that the assessment of whether a PE exists must be based on actual facts and circumstances. Treaty concepts, such as the meaning of “fixed,” the permanence requirement, and the distinction between core business versus preparatory or auxiliary activities, continue to govern the analysis.

Crucially, the Update makes clear that remote working from home does not automatically create a PE. The mere fact that an employee or contractor uses their home for business activities does not mean the location is at the enterprise’s disposal.

When a home office may resemble a PE

A home office may begin to take on the characteristics of a fixed place of business when two conditions are present:

1. The home is used on a regular and continuous basis for carrying on the enterprise’s business; and
2. The enterprise has effectively required the individual to use that location (for example, where no office is provided despite the nature of the role clearly requiring one).

By contrast, where working from home is primarily driven by personal choice, is incidental, or occurs only occasionally, the home is typically not considered to be at the disposal of the enterprise. In addition, the activities performed from home are often preparatory or auxiliary in nature, which may further limit PE exposure under treaty exceptions.

The “50% Working‑Time” Indicator

To help distinguish between occasional and substantive remote working, the OECD introduces a practical time‑based indicator:

• Under 50% of total working time: A home or similar location is generally not treated as a fixed place of business.
• 50% or more of total working time: A deeper assessment is required. The key question becomes whether there is a commercial reason for the individual to carry on the enterprise’s business from that country.

The 50% threshold is evaluated over any 12‑month period beginning or ending within the relevant fiscal year, focusing on the individual’s actual work patterns—not just contractual terms.

Determining whether a commercial reason exists

A commercial reason exists when the individual’s physical presence in a country supports the enterprise’s business in a meaningful way. Examples include facilitating customer meetings, developing a customer base, engaging in supplier negotiations, providing services that require real‑time collaboration across time zones, or accessing business‑relevant expertise.

However, the presence of customers or suppliers in the country (or a differing time zone)does not automatically establish a commercial reason. The OECD stresses that intermittent, incidental, or infrequent contact generally does not meet the threshold.

Importantly, there is no commercial reason where remote work is permitted solely to:

• retain or attract the individual, or
• achieve cost savings (e.g., by reducing office space).

When the individual is essentially “the business”, such as a self‑employed consultant spending most of their time working from a home office in another country, the likelihood of a fixed place PE increases, given that the individual’s location directly supports the enterprise’s income‑generating activities.

Illustrative examples

The OECD’s updated Commentary includes multiple examples. Below are two that capture the core principles.

Example 1: Below 50% Working Time (No PE)

An employee works from home in another country for 30% of their total working time over a 12‑month period. Neither the permanence requirement nor the time threshold is met. The home is not a fixed place of business, and no PE arises.

Example 2: Above 50% With Commercial Reason (PE Likely)

An individual works from home in another country for 80% of their time and regularly meets local customers, helping develop the company’s business in that country. The employee’s physical presence supports business activities. With at least 50% usage and a commercial reason, the home office constitutes a fixed place PE.

Practical framework for assessing PE risk

The update outlines a structured approach to evaluating cross‑border remote‑work PE exposure. In practice, enterprises should consider:

1. The location from which the individual works and the duration of remote work.
2. Whether the location is “fixed”, meeting the permanence requirement.
3. Working‑time patterns, particularly whether usage is below or above 50%.
4. Whether a commercial reason exists linking remote work in that country to the enterprise’s business.
5. The nature of the activities performed, focusing on whether they are core income‑generating tasks.

Conclusion

The OECD’s 2025 Update provides clearer and more predictable rules for determining when cross‑border remote work creates a fixed place PE under Article 5. It reinforces that a home office is not automatically at the disposal of the enterprise, and it introduces a practical working‑time indicator combined with a focused analysis of commercial rationale.

For globally active enterprises, these clarifications offer a more robust basis for managing PE exposure while supporting flexible work arrangements. Maintaining clear policies, monitoring working patterns, and documenting business rationales will be essential to sustaining tax certainty as remote and hybrid work models continue to evolve.

Read the full article on the InCorp website.