The New OECD Commentary on Teleworking and Permanent Establishments: A Summary
Estimated reading time 7 minutes
Galahad, one of our French member firms, offers insights into the OECD’s update to the Model Tax Convention on Income and Capital for cross-border teleworking (remote working).
Taking into account the rise of teleworking, or remote working, in the wake of the COVID-19 pandemic, this update provides new and detailed guidance on short-term teleworking abroad and specifies the cases in which teleworking abroad, such as from a home office, creates a taxable presence for companies.
1. Scope of teleworking
The OECD adopts an intentionally broad concept of teleworking.
Teleworking encompasses any situation in which an individual performs all or part of their professional activity for an enterprise located in one Contracting State from a place situated in the other Contracting State, provided that the individual has the possibility and makes the choice to do so for personal reasons.
This broad scope may include, without limitation, the individual’s primary residence, but also a secondary residence, a holiday rental property, the home of a friend or family member.
On the other hand, the Commentary expressly excludes from this definition:
- the enterprise's own premises, and
- the premises of another enterprise with which it maintains a commercial relationship (e.g. clients, suppliers or associated enterprises)
2. Criteria for determining the existence of a fixed place of business
2.1 Permanence (Fixity)
The existence of a fixed place of business in a teleworking context is contingent, first, upon the relevant place exhibiting a sufficient degree of permanence.
The OECD considers this condition satisfied where the individual performs at least 50% of their total working time over a rolling 12-month period from the relevant place.
- If the 50% threshold is not met, the place will generally not be regarded as a business installation of the enterprise
- If the threshold is met, this does not, in itself, establish a fixed place of business. Additional criteria, particularly the existence of a commercial rationale, must be considered
The assessment must reflect the actual work performed and therefore requires appropriate documentation. Contractual provisions or internal corporate policies may be relied upon only to the extent that they faithfully reflect the individual’s effective work patterns.
This update therefore no longer refers to whether the use of the employee’s home was imposed by the employer as a condition for an office located in the employee’s home being considered a Permanent establishment of the foreign employer.
2.2 Existence of a commercial reason
The 50% threshold must be assessed together with the existence of a commercial reason for the individual’s presence in the State where teleworking occurs.
A commercial reason exists where the individual’s physical presence in the State facilitates the conduct of the enterprise’s business, such as by enabling:
- direct contact with clients, suppliers, or associated enterprises;
- business development, client prospecting, or identification of new commercial opportunities;
- management of supplier relationships or contract negotiation and follow-up;
- Real-time or near real-time interactions across different time zones (e.g., call centre, IT support, or telemedical services);
- collaboration with other enterprises or with academic/research institutions possessing relevant expertise;
- provision of services requiring physical presence (e.g. onsite training or repair services)
Where the individual’s presence enables such interactions, a commercial rationale is presumed.
This presumption remains rebuttable, particularly where:
- interactions are sporadic, incidental or merely occasional;
- telework is granted solely to accommodate personal preferences or as a human resources measure (e.g., employee retention);
- telework is motivated exclusively by cost-saving considerations, such as reducing office space;
- there is no objective business need for the individual to work from the other State
The Commentary also clarifies that certain elements, in isolation, do not demonstrate a commercial reason:
- the mere presence of clients, suppliers, or associated enterprises in the other State, or
- the fact that the home is located in a different time zone.
2.3 Absence of commercial reason – other relevant circumstances
Where the 50% threshold is met but there is no commercial reason for the individual’s presence in the other State, the relevant place will generally not constitute a business installation of the enterprise.
However, the OECD recognises that other circumstances may nonetheless justify the existence of a fixed place of business.
This may be the case, for example, where the individual is the sole or principal person carrying out the enterprise’s activities, and performs those activities predominantly from the relevant place (e.g. a consultant operating her advisory business almost entirely from a home office abroad).
Five examples are provided by the update, with a view to clarifying practical application of the new criteria.
OECD Teleworking Examples and PE Outcomes
| Key Facts | Fixity (Permanence) | ≥50% Telework | Commercial Reason | OECD Conclusion | |
| A (No PE – Lack of fixity) | Employee teleworks for 3 months in a 12-month period from a rented place in the other State. | ❌ Not fixed (insufficient permanence). | Not applicable. | Not applicable. | No permanent establishment. Location is not used with sufficient continuity. |
| B (No PE – Threshold not met | Employee teleworks 1–2 days/week (≈30%) from home in other State for 12 months. | ✔ Fixed (used regularly over the year). | ❌ < 50%. | Not assessed (threshold not met). | No permanent establishment, absent additional relevant facts. |
| C (PE – All conditions satisfied) | Employee works 80% from home in other State and regularly visits local clients. | ✔ Fixed. | ✔ ≥ 50%. | ✔ Presence facilitates service delivery to local clients. | PE exists (no contrary facts). |
| D (No PE – Commercial reason rebutted) | Employee works 60% from home in other State; services to clients in several countries delivered entirely remotely; occasional local client visits only. | ✔ Fixed. | ✔ ≥ 50%. | ❌ No real commercial need for presence; local visits are incidental. | No permanent establishment. |
| E (PE –Timezone advantage as commercial reason) | Employee works almost exclusively from other State; provides real-time cross-timezone support to global clients. | ✔ Fixed. | ✔ ≥ 50%. | ✔ Timezone advantage facilitates business activity. | PE exists (no contrary facts). |
However, it should be noted that the OECD comments are not binding and are merely recommendations for the tax authorities of member states.
Few states have taken a position to date on their interpretation of the concept of permanent establishment in relation to teleworking, and some administrations may still choose to deviate from these new criteria if they consider them too far removed from their own interpretation.
If you would like to understand how these updated OECD guidelines may affect your organisation’s cross-border teleworking arrangements, permanent establishment risk or wider global mobility strategy, CELIA Alliance can help.
Through our international network of leading tax, legal and employment specialists, we provide coordinated, country-specific advice to help businesses assess risk, document working arrangements and stay compliant as rules continue to evolve.
Please get in touch with CELIA Alliance to discuss how we can support your organisation across jurisdictions.