{"id":9064,"date":"2025-12-17T18:32:49","date_gmt":"2025-12-17T16:32:49","guid":{"rendered":"https:\/\/www.feliu.biz\/?p=9064"},"modified":"2025-12-17T18:35:06","modified_gmt":"2025-12-17T16:35:06","slug":"update-oecd-model-tax-convention-remote-work","status":"publish","type":"post","link":"https:\/\/www.feliu.biz\/en\/update-oecd-model-tax-convention-remote-work","title":{"rendered":"UPDATE TO THE OECD MODEL TAX CONVENTION: REMOTE WORK AND PERMANENT ESTABLISHMENT"},"content":{"rendered":"

One of the issues that generates the greatest uncertainty in cross-border remote working arrangements is whether an employee\u2019s home may constitute a Permanent Establishment (PE)<\/strong> of the employer.<\/p>\n

In the latest update to the OECD Model Tax Convention<\/strong>, published on 18 November<\/strong>, new commentary has been introduced\u2014among others, to Article 5 (Permanent Establishment)<\/strong>\u2014clarifying that remote work carried out for personal reasons does not automatically convert an employee\u2019s home into a fixed place of business.<\/p>\n

According to the updated guidance, the existence of a PE must be assessed based on the facts and circumstances of each tax period<\/strong>, taking into account whether the place meets the requirement of permanence<\/strong>. Even if the space used by the employee is continuous, a PE will only arise if that place can be considered attributable to the enterprise<\/strong>. Furthermore, activities of a purely auxiliary or preparatory<\/strong> nature cannot give rise to a PE.<\/p>\n

The mere fact that an employee uses their home abroad to perform tasks related to a Spanish company does not, in itself, mean that such home constitutes a place of business of the company. The OECD clarifies that incidental use is not sufficient<\/strong>, and that the analysis must focus on the continuity and functional relevance<\/strong> of the space. The indicative reference to use of less than 50% of the annual working time<\/strong> aligns with the need for a sufficient degree of connection between the business activity and the place in question.<\/p>\n

The assessment must be based on the actual activities performed<\/strong>, and not solely on employment contracts or internal company policies. If the use exceeds 50% of the annual working time, the analysis should focus on whether there is a commercial rationale<\/strong> that objectively justifies the Spanish company carrying out business activities in that State through the employee.<\/p>\n

Determining the existence of such a commercial rationale becomes a key factor. According to the OECD, a commercial rationale exists when the physical presence of the employee facilitates the company\u2019s business activities<\/strong>, such as access to clients, suppliers, or business opportunities in the State of residence; the provision of real-time services; or collaboration with local entities. Sporadic or merely ancillary interactions do not constitute a commercial rationale.<\/p>\n

Likewise, there is no commercial rationale where a Spanish company allows remote work solely to retain the employee<\/strong> or to reduce labour or real estate costs<\/strong>. Similarly, the mere existence of clients in the country of residence or time zone differences is not sufficient to attribute a PE to the company. A motive demonstrating that the company derives a relevant operational advantage<\/strong> from the employee\u2019s presence in that State is essential. In the absence of such a commercial rationale, the home should not be regarded as a place of business of the Spanish company.<\/p>\n

The update concludes with a series of illustrative examples:<\/p>\n