When Does a Remote Employee Create a Permanent Establishment? What the OECD’s New Guidance Means for Mobility Leaders

One remote employee working from the wrong country for too long can create a taxable corporate presence — and a compliance obligation — your company didn’t know it had. Until November 2025, there was almost no formal guidance on when that line gets crossed.

Since 2020, the rise of remote work has introduced a challenge for HR and mobility teams: if an employee works from home in another country, does that create a taxable presence (or a permanent establishment) for the employer there?

For years, companies had very little formal guidance. This changed on November 19, 2025, when the OECD released its first comprehensive update to the Model Tax Convention Commentary since 2017, directly addressing cross-border remote work and permanent establishment risk.

If you approve work-from-anywhere requests, manage a global workforce, or are refining your mobility policy, this update matters. Here’s what’s new and what to do next.

What Is a Permanent Establishment (PE)?

Article 5 of most tax treaties defines as permanent establishment as a “fixed place of business” through which a company conducts its activities. The question that HR and mobility teams keep running into: does an employee’s home office count?

The 2017 Commentary said intermittent or incidental home office use generally wouldn’t qualify. This ambiguity has left companies guessing about whether a home office shifts from temporary personal perk to a taxable corporate presence.

What the OECD’s 2025 Update Adds: The Two-Part Test

The OECD’s updated guidance finally removes that guesswork by creating a two-part test to judge this risk.

• A working-time indicator: If the employee is working from a home office less than 50% of the time, measured over a meaningful period, it generally will not create a taxable presence for the company.
• A commercial reason test: Even if an employee works abroad more than half the time, a taxable presence is only triggered if the employer specifically requires them to be in that country for a business purpose such as meeting local clients, serving local markets, or accessing specialized local infrastructure. If the employee is abroad purely for personal convenience or lifestyle choices, it typically does not create a corporate tax presence.

The new guidelines illustrate this with examples. An employee who works from home 80% of the time and regularly visits local clients looks like a permanent establishment – the time and commercial indicators both point that way. Meanwhile, an employee working from home 60% of the time but meeting a client only once a quarter looks different as the occasional visit generally isn’t treated as crossing the PE line. Passing the 50% time mark alone doesn’t automatically mean a PE if commercial activity is rare and incidental.

Limitations of the 2025 OECD Guidelines: What They Don’t Cover

While the new OECD updates provide helpful guidance, they do not create an automatic, universal green light for remote work. Here are two important caveats.

1. This is Commentary, not treaty text. The Commentary itself is not legally binding. It helps tax authorities and courts to interpret existing treaties. It doesn’t automatically change the underlying law.
2. Local law still governs. A tax authority in a specific country is bound by its national laws first. Even though most countries pay close attention to OECD guidance, local courts still have the final word on how strict or lenient they want to be on a given arrangement.

In short, every work-from-anywhere arrangement still deserves a case-by-case look.

What mobility and HR leaders should do next

• Revisit your remote work policy. Start tracking working-time percentages by location. The 50% time threshold gives you something concrete to build your monitoring around.
• Flag client-facing and revenue-generating roles. The commercial reason test means sales, business development, and client-relationship roles carry more inherent PE risk than back-office or purely personal-preference remote arrangements.
• Tighten documentation. Keep precise, written documentation showing where remote work occurred, the exact dates spent abroad, and the specific business purpose (or lack thereof) to present as evidence during tax audits.
• Loop in tax before approving long-term remote arrangements abroad. Cross-border remote work requests should be routed through corporate tax or legal teams before approval, allowing the business to properly structure the arrangement’s tax liabilities.
• Don’t assume uniform treatment across countries. Evaluate local tax laws for every country individually, because tax authorities in each jurisdiction will interpret and enforce OECD guidance differently.

Evaluate Your Cross-Border Remote Work Risk Now

Because there is now an official OECD framework, companies can no longer claim ignorance about corporate risk caused by remote workers. These guidelines mean tax authorities expect companies to actively monitor where employees work, how long they stay abroad, and what business activities they conduct there.

Companies should audit all active work-from-anywhere setups immediately and strengthen their internal tracking, policies, and documentation. Moving forward, remote work arrangements should be evaluated before an employee begins a stay to prevent penalties and unexpected compliance obligations.

KBF’s global mobility practice works with organizations on this kind of cross-border risk – from policy design to day-count tracking to permanent establishment analysis for specific arrangements. Connect with our team to discuss what this update means for your program.