Telework abroad: what does the OECD 2025 update mean for your business?

When is there a "permanent establishment"?

In principle, the profits of a company are taxed in the country where the company is established, unless there is a permanent establishment in another country.

A home office may in certain cases give rise to the creation of a material permanent establishment for the employer, making it taxable in that country with additional administrative and tax obligations as a result. (The possible impact of cross-border telework on the employee's tax and social security position is beyond the scope of this article).

Whereas telework previously received only limited attention in the OECD commentary, the topic has now expanded considerably. A permanent establishment traditionally presupposes a fixed place of business from which all or part of the activities of the enterprise are carried on.

While this definition in itself remains unchanged, the OECD's 2025 update re-emphasizes the classic conditions that have always been central to the analysis:

• There must be a place of business activity;

• With a sustainable character (permanence);

• where the business effectively carries out its activities;

• and the activities are not merely preparatory or auxiliary in nature.

In this article, we look specifically at whether a home office can be considered a permanent establishment. We leave out other risks, such as working with a local sales agent, although these in themselves can also lead to a personnel permanent establishment.

What changes for the definition of telework?

The OECD introduces a clear and analytical framework for determining when telework in another state may or may not give rise to a permanent establishment. The fact that a particular place is used by a person, e.g., an employee, to perform work for the enterprise is not in itself sufficient to qualify that place as a place of business of the enterprise.

In this regard, the OECD Commentary expressly emphasizes that the existence of a permanent establishment must always be assessed on the basis of the concrete situation during a given period, independently of past or future practices of the enterprise.

Wider interpretation of telework

Not only the employee's home workplace counts, but any "relevant place" where professional activities are carried out. For example a second residence, vacation home, or the home of an acquaintance or family member.

The 50% threshold

As a measure, the OECD introduces a 50% threshold.

Does an employee work less than 50% of his total working time from a foreign location (home or other relevant place)? If so, this is not considered a business location of the company. This assessment is made over a 12-month period beginning or ending in the tax year in question.

Is the threshold exceeded? Then further analysis is required to determine whether the location is a business premises of the enterprise.

Emphasis on commercial purpose

An overriding factor is whether there is a commercial reason to conduct activities in the state where the property (or other relevant location) is located. The OECD emphasizes that this analysis should be done on the basis of all the facts and circumstances, focusing on the functional role of the activities within the enterprise.

No commercial reason, e.g.:

• home working due to employee preference (e.g. work-life balance)

• HR reasons (e.g., talent retention)

• general cost savings

• sporadic visits to customers or third parties

• ...

These reasons have no operational necessity and do not create a permanent establishment, even for long-term home-based work.

Commercial reason, e.g.:

• serving local customers or suppliers

• structural participation in negotiations

• market development

• cooperation with local partners

• real-time interaction in other time zones

• structural collaboration with company personnel or affiliates

• ...

In this case, a permanent establishment may well arise. It is not required that the activities are "productive" in themselves. If there are several reasons, it is sufficient that one of them is commercial.

However, the mere presence of customers, suppliers, affiliated companies or a time difference does not suffice as a commercial reason.

Waiver of obligation criterion

Whether working from home has been imposed (expressly or tacitly) by the employer is no longer decisive. Actual working conditions are now decisive.

What does this mean for your business?

• The OECD Model Provisions and Commentary are not legislation , but play a crucial role in the interpretation of existing and future tax treaties.

• They provide a manageable and predictable framework for assessing firm establishment risks.

• Belgian courts and tax administration traditionally attach great importance to the OECD Commentary when interpreting double tax treaties.

• At the same time, caution is needed: several countries have expressed reservations or observations in the OECD update and may follow a stricter interpretation in their national practice or jurisprudence. Thus, the concrete impact remains dependent on the applicable tax treaty and the attitude of the tax administrations involved.

Positive: The core of the OECD approach is very much in line with the pragmatic line already taken by Belgium and the Netherlands in their mutual agreements on cross-border homeworking (bilateral agreement of late 2023).

On June 21, 2023, Belgium and the Netherlands concluded a new tax treaty, which currently has not yet entered into force. The accompanying protocol provides for a dynamic interpretation: treaty provisions that are consistent with the OECD Model Treaty are interpreted in light of the OECD Commentary at the time of application. For the permanent establishment definition, this means that once the new treaty enters into force, the OECD Update 2025 on home-based work can also help determine the interpretation framework.

Other adjustments

In addition to the clarifications on permanent establishments and telework, the OECD 2025 update also includes additional guidance on natural resource activities (such as mining, oil and gas). An optional treaty provision allows member states to agree shorter time thresholds in bilateral tax treaties for the creation of a permanent establishment in extractive activities, which is particularly relevant for project-based work.

The remaining amendments concern Article 9 (prohibited enterprises), Article 25 (mutual agreement) and Article 26 (exchange of information).

Conclusion

Entrepreneurs would be well advised to review their existing homeworking and teleworking arrangements against the clarified OECD late 2025 guidelines. Because the concrete implications depend heavily on the applicable tax treaty and any national specifics, this often requires an individual assessment. A well-founded policy can avoid unpleasant surprises, both in terms of corporate tax, wages and social security obligations.