Concept
Working from a home abroad is the quietest of corporate tax exposures. No document is signed, no premises are leased, no registration is filed; a senior executive or a board member simply moves and carries on working. A year later the country of residence may conclude that a foreign enterprise has been carrying on its business there through a fixed place of business, and claim corporate tax on the attributable profit, local filings and penalties for the periods missed.
Before November 2025 the analysis rested on paragraphs 18 and 19 of the Commentary on Article 5. Both turned on a single question — whether the home was at the disposal of the enterprise — and answered it through employer requirement. Where the enterprise had provided no other office and had thereby effectively required the individual to work from home, the home office could be at its disposal; where the individual had chosen the arrangement, the enterprise had a defence. The 2025 Update deleted both paragraphs outright and replaced them with paragraphs 44.1 to 44.21, "Cross-border working from a home or other relevant place".
The change of model runs deeper than it looks. The old test asked what the employer had required; the new one asks how much time the individual spends there and why the business needs that presence in that country. Employer requirement has gone from decisive to one factor among several, and the standard corporate explanation — remote work was allowed because it is cheaper — has gone from neutral to harmful.
The block reaches wider than the home office in the literal sense. Paragraph 44.1 extends it to an "other relevant place": a second home, a holiday rental, the home of a friend or relative — any place that is neither premises of the enterprise itself nor premises of another enterprise with contractual or other connections to it, such as a customer, a supplier or an associated enterprise. Working from the office of a subsidiary falls outside the block and is assessed under the general rules of Article 5.
The two-stage model
First stage: share of working time
Paragraph 44.8 sets a quantitative filter. A home or other relevant place "would generally not be considered a place of business of the enterprise if the individual worked from that home or relevant place for less than 50 per cent of their total working time for that enterprise over the course of any twelve-month period commencing or ending in the fiscal year concerned". The same paragraph adds that exceptions to this approach are not anticipated to occur in most situations.
Three features of the wording do the work. The denominator is total working time for that enterprise, not calendar days and not days of presence in the country. The window is any twelve-month period commencing or ending in the fiscal year concerned, which makes it a rolling window: a mid-year move crosses the halfway mark considerably earlier than a calendar-year view shows. And the share comes from actual behaviour: paragraph 44.9 states that the actual conduct of the individual determines the calculation of working time, with contractual arrangements and enterprise policies of practical assistance only to the extent that they correspond with that conduct.
Second stage: commercial reason
At 50 per cent or above, paragraph 44.10 sends the question to the facts and circumstances, and paragraph 44.11 identifies the prominent consideration as whether there is a commercial reason for the activities to be undertaken in that Contracting State. The criterion is framed in terms of facilitation: a commercial reason exists where the physical presence of the individual in that State itself facilitates the carrying on of the business of the enterprise — for instance because there are people or resources in that State to which the enterprise needs access.
Paragraph 44.12 turns this into a workable test: a commercial reason will generally be present if the enterprise has a reason to have the individual physically present in that State for the conduct of its activities and the use of the home facilitates that. The practical marker given there is that, absent the home, the enterprise would make use of other premises in that State, such as a rented office. Paragraph 44.17 lists the situations where a reason is usually found: meetings with customers; cultivation of a new customer base or identification of business opportunities; identification of suppliers and management of supplier relationships and contracts; real-time or near real-time interaction with customers or suppliers in different time zones, such as call centre services, virtual IT support or medical services; access to business-relevant expertise, such as regular meetings with university research personnel; collaboration with other businesses; performance of services for customers in that State where those services require physical presence, such as training or repair on the customer's premises; and interaction with employees and other personnel of the enterprise or of associated enterprises.
One reason among several is enough: paragraph 44.13 records that there may be several reasons for using a home, and if one of them is a commercial reason, the indicator is satisfied. No "productive character" of the activity has to be shown. Two filters restrain the test. Paragraph 44.14: engagement on an intermittent or incidental basis does not amount to a commercial reason — short occasional visits to a customer's premises, or engagement minor in the context of the overall relationship with that customer, will not do. Paragraph 44.18: the mere presence of customers, suppliers or an associated enterprise in the State does not lead to the conclusion that a commercial reason exists, and neither does the mere fact that the place is in a different time zone.
Cost saving and staff retention
The Commentary closes off the two most common explanations in terms, and both are the ones enterprises volunteer most readily.
Paragraph 44.16: an enterprise that permits work from home "solely to reduce costs (for example, reduced expenditure on office space)" does so for that purpose, and not because there is a commercial reason for the individual to perform activities in the Contracting State where the home is located. Paragraph 44.15 requires a link between the individual's presence in that State and the carrying on of the business of the enterprise, and removes the case where the enterprise enables home working solely to obtain or retain the services of that individual.
At the second stage both formulations count against the enterprise: each confirms that the business did not need the individual's presence in that particular country. The word "solely" in both paragraphs matters — where a genuine commercial reason sits alongside cost saving or retention, the indicator is satisfied under paragraph 44.13 with all that follows, so mixed motives worsen the position rather than improve it.
The five examples
Paragraph 44.21 illustrates the application of paragraph 1 of Article 5 with five examples. Example A addresses whether a place of business is fixed; Examples B to E address whether a home or other relevant place is a place of business of an enterprise. In all five the individual works for RCo, an enterprise of State R.
| Example | Facts | Share of time | Fixed | Commercial reason | Outcome |
|---|---|---|---|---|---|
| A | Works from State R as her regular pattern; after a holiday stay in State S she rents and works from a place there for three consecutive months | Not assessed | No — three months within the twelve-month period | Not assessed | No PE: the place lacks permanence |
| B | Works from her home in State S one or two days a week throughout the twelve-month period | 30% | Yes — used throughout the period | Not assessed | No PE: share below half |
| C | Works from his home in State S; regularly visits RCo's clients in State S to provide services to them | 80% | Yes | Yes — presence facilitates the provision of services to customers in State S | PE |
| D | Exclusively client-facing role; serves RCo clients in States R and S and in third States remotely, without meeting them physically; once a quarter visits a client's premises in State S for a day to review performance against the contract | 60% | Yes | No — the mere presence of clients in State S is not enough, and the quarterly visits are intermittent and incidental | No PE |
| E | Works almost exclusively from her home in State S; serves customers in State R and other jurisdictions in different time zones virtually; her presence in State S lets her be fully available to them around the clock | Almost 100% | Yes | Yes — presence facilitates the provision of services to customers in State R and other time zones | PE |
Example A stands apart because it never reaches the quantitative test. Three months of work within a twelve-month period do not give the place the required degree of permanence, and the analysis stops there. The Commentary adds three clarifications, each disposing of a separate practical question. The reason for the stay is irrelevant: the conclusion is the same where the individual remained in State S to care for a sick relative. Place of stay and place of work need not coincide: the conclusion is the same where the individual worked from some place other than the one where she was staying. And recurrence is measured over the long run: where a place is used for the enterprise's activities on a recurrent basis over several years, each period of use is considered in combination with the number of times the place is used over those years. A separate point closes the argument from cost — the fact that the individual retains a holiday home and incurs upkeep costs throughout is not relevant; the determinative consideration is the time spent performing activities from that place.
Example B is the first stage in pure form. Thirty per cent, with the place fixed throughout, yields no place of business of the enterprise, and the qualifier "in the absence of other facts and circumstances showing otherwise" is the only opening left to a tax administration.
The real work is done by the pair C and D. In both, the home is fixed, both cross the threshold, and both involve clients in State S; the outcomes are opposite. For C, the presence in the State facilitates the provision of services to customers located there — a direct fit with paragraph 44.12. For D, clients in State S also exist, but he serves them remotely and on the same footing as clients in State R and third States; the only physical interaction is a single day each quarter. The Commentary gives two grounds for the refusal: the mere presence of clients in the State does not create a commercial reason (paragraph 44.18), and the quarterly visit is intermittent and incidental (paragraph 44.14). What separates C from D is one thing — whether the individual's presence in the State actually facilitates the carrying on of the business or merely coincides with it geographically. The share of time does not settle it, D being at 60 per cent, and neither does contact with local clients as such.
Example E marks the boundary from the other side. The individual has no customers in State S at all, and the only thing her being there provides is a time zone that lets her serve customers in other zones in real time. That is enough for a commercial reason. Read against paragraph 44.18, which says that a different time zone does not by itself establish a commercial reason, the line becomes visible: what counts is the specific benefit to the enterprise from round-the-clock availability, which the difference in zones alone does not supply.
For a family office the practical reading of the five is straightforward. A senior executive who moves to a country where the group has customers, suppliers or a team falls into the logic of C. A senior executive who moves for personal reasons and continues to serve the previous perimeter remotely falls into the logic of D — until the presence begins to be used: one regular local function shifts the case towards C.
The sole or primary person
Paragraph 44.20 carves out the case where an individual is the only person, or the primary person, conducting the business of an enterprise. The Commentary's example is a non-resident consultant present for an extended period in a State, carrying on most of the business activities of her own consulting enterprise from an office set up in her home there; that home office constitutes a place of business of the enterprise. The two-stage logic softens nothing here: the paragraph is written as a statement of result.
For ownership structures this is the most underrated paragraph of the block. The director of a management company, the sole partner of a consulting firm, the manager of a family investment vehicle — each falls under paragraph 44.20 before any share is calculated, because their activity is the activity of the enterprise. Israel has reserved the right to extend the same treatment to a founder, a partner or a relatively significant senior executive.
What the threshold does not decide
Fifty per cent is a presumption. Below it the Commentary says "generally"; above it the assessment opens up on the facts, where the commercial reason remains the prominent consideration among others, and paragraph 44.19 records the symmetry: where there is no commercial reason, the place would not be a place of business of the enterprise unless other facts and circumstances indicate otherwise.
Two independent filters continue to operate alongside. The requirement that the place be fixed, under paragraphs 28 to 34 of the Commentary — the filter Example A turns on. And the preparatory or auxiliary exception in paragraph 4 of Article 5, to which paragraph 44.5 refers expressly: even where a fixed place of business under paragraph 1 would otherwise exist, paragraph 4 deems it not to constitute a permanent establishment where the activities carried on there are limited to a preparatory or auxiliary character. A home office used exclusively for auxiliary functions stays outside the definition at any share of working time.
The 50% threshold and corporate residence
The 50 per cent threshold answers the permanent establishment question and does not answer the question of the company's tax residence. The first determines whether the enterprise has a place of business in the country where the individual lives, and how much profit is attributable to it. The second determines where the company is resident as a whole, and is settled under Article 4 of the treaty — through the place of effective management and the treaty tie-breaker, with no quantitative thresholds.
A director working from a home abroad falls within both tests at once, with different consequences. The share of working time opens or closes the commercial-reason analysis under the 2025 Commentary; a shift in where key management and commercial decisions are habitually made is assessed on its own terms and can move residence even where the time threshold has not been crossed. The reverse is equally real: a fully remote ordinary employee may create a permanent establishment without touching the company's residence at all. The update of 19 November 2025 gave both questions a common model framework and a common date, but not a common test. The residence side of the boundary is covered in corporate tax residence, and the general mechanics of Article 5 in permanent establishment.
The domestic layer: Germany and Spain
The Commentary operates on top of national positions that were settled earlier and continue to apply in their own right.
Germany has gone furthest. The BMF letter of 5 February 2024 (GZ IV D 1 - S 0062/23/10003 :001) rewrote the application decree to the Fiscal Code, and the new AEAO on § 12, paragraph 4, states that an employee's activity in their domestic home office generally does not create a Betriebstätte of the employer, and that the same holds at treaty level from the German application-state perspective — a fixed place under paragraphs 1 and 4 of Article 5 of the Model Convention generally does not arise. The answer is expressly preserved in three situations, each of which cut against the enterprise under the old model: where the employer bears the costs of the home office and its equipment; where a lease over the employee's domestic premises is concluded between employer as tenant and employee as landlord; and where the employer provides the employee with no other workplace. The reason given is that the employer typically has no sufficient power of disposal over the employee's domestic premises. On the lease there is one qualification: the answer changes where the employer is in fact entitled to use the premises otherwise, for example through a right to send other employees there or a right of entry beyond occupational safety inspections.
The German exception is drawn narrowly and lands precisely on the scenario this article is written for: the position may differ where an employee exercises management functions and those functions convey power of disposal to the enterprise. Paragraphs 6 and 7 of the same AEAO on § 12 reinforce the line from the other side: a place-of-management Betriebstätte may be located in the premises of a third party who manages the business, and where no other fixed facility exists, the manager's dwelling is usually that place. The ordinary employee in Germany is protected; the executive is not.
Spain gave a narrower answer. In binding ruling V0066-22 of 18 January 2022 the DGT considered a UK employer whose employee spent more than 183 days in Spain in 2020 working remotely, with the company bearing no accommodation costs there and paying no additional remuneration for working from Spain. Relying on the OECD Secretariat's pandemic-period position, the DGT concluded that discontinuous use of the employee's home does not place a place of business at the enterprise's disposal and does not produce the required degree of permanence. Three circumstances carried the conclusion: the employee stayed in Spain voluntarily, the employer kept a workplace available for him in the United Kingdom, and the employer funded nothing about the Spanish arrangement. Agency PE was dismissed separately: the employee had no authority to conclude contracts, and the DGT treated activity arising from an extraordinary event as unlikely to be habitual. The closing qualification is the operative one: if the employee's stay in Spain continues beyond the duration of the pandemic measures, the possible existence of a permanent establishment must be analysed case by case. That open assessment is what the 2025 model structures.
The divergence between the two administrations reflects the limits of the Commentary's own reach. The German answer is given for the domestic concept of Betriebstätte and at treaty level at once, and rests on power of disposal; the Spanish answer is given on the facts of a specific pandemic episode and leaves post-pandemic remote working open. Neither is displaced by the 2025 Update, and in a dispute with either administration the argument is built on both layers at once.
The evidence side
Both stages are tested against facts the enterprise either records from the outset or cannot reconstruct afterwards.
The share of working time is determined by actual conduct (paragraph 44.9). The primary sources are a presence calendar by country, time records, access-system and corporate-service data, travel documents and flight records. Employment contracts and remote-work policies help only where they match that data; a divergence between policy and actual pattern is read in favour of the actual pattern. A separate difficulty is the method of counting itself: the Commentary makes total working time the denominator rather than days, and does not fix how one converts into the other. Israel has reserved the right to test the threshold by the greater of two measures — a comparison of full or partial working days of presence in the home jurisdiction against full working days spent outside it, or a comparison of full or partial days actually worked from the home jurisdiction against full days actually worked outside it. Until such divergences are resolved, enterprises with a material cross-border perimeter calculate the share both ways and keep both computations.
The second stage calls for different material. A commercial reason is proved by what shows why the enterprise needs the individual's presence in that particular place: the list of local customers and suppliers he works with and the volume of that work; correspondence and meeting calendars; the functions he performs for a local team; the economic logic of the time zone, where the position rests on it. And, mirroring that, by what should not be on file: internal emails and decisions explaining the move by savings on office space or by retaining a particular person. Such documents exist in every enterprise that has allowed remote working, and since November 2025 they are material against it.
Enterprises that have faced an audit should expect three things. The rolling twelve-month window is tested in every position, not only across calendar years. The share is calculated for each individual separately, not as a team average. And the absence of time records in a cross-border arrangement is not neutral — it leaves the administration free to compute on its own data.
What counts against the enterprise and what supports it
The indicators below orient the second-stage assessment; they are not a verdict, and each line is tested against the facts of the case and the text of the applicable treaty.
| Supports the enterprise's position | Counts against the enterprise |
|---|---|
| The share of work from the foreign home stays consistently below half in every rolling twelve-month window, evidenced by time records | The share exceeds half in at least one rolling window; there are no time records and the share is reconstructed from the administration's data |
| A workplace remains available to the individual in the enterprise's country and is genuinely used | The workplace in the enterprise's country has been given up and trips there are reduced to occasional visits |
| The enterprise has no customers, suppliers, team or projects in the individual's country of residence | The individual handles local customers or suppliers, works with a local team, or develops a customer base in that country |
| The presence is explained by the individual's personal circumstances and gives the enterprise no operational benefit | The presence provides round-the-clock coverage, access to expertise, or physical servicing of customers |
| The move is documented as the individual's own initiative, with the enterprise not shaping the arrangement | Internal documents explain the arrangement by office-cost savings or by retaining a particular person (paragraphs 44.15 and 44.16) |
| Only preparatory or auxiliary functions are carried on from the home | The core business of the enterprise, or management functions, are carried on from the home |
| Use of the place is discontinuous and does not acquire permanence over twelve months | The place is used continuously over an extended period, or recurs year after year |
| The individual is one of many employees with an ordinary function | The individual is the only person, or the primary person, conducting the business of the enterprise (paragraph 44.20) |
Reservations and positions
Paragraphs 44.1 to 44.21 were not adopted unanimously, and the reservations cluster around two things: the threshold and Example D.
The Czech Republic reserves its position on the whole block, disagreeing that the category of premises should be so determinative and thereby limit the possibility of a permanent establishment in home-working cases. Chile does not adhere to all of the interpretations in paragraphs 44.6 to 44.21. India disagrees with the block outright — with both the time threshold and the commercial-reason condition — considering that the individual's home can be regarded as at the disposal of the enterprise and constitutes a place of business of it. Malaysia reserves the right to agree bilaterally on a percentage of its own in place of fifty.
Nigeria disagrees with paragraphs 44.14 and 44.15, and will find a commercial reason where intermittent or short occasional visits to a customer's premises relate to an activity lasting more than six months. It disagrees with paragraph 44.16, treating the reduction of an enterprise's costs as a valid reason for not acquiring office space and therefore a commercial reason. And it disagrees expressly with the conclusion in Example D: it regards the quarterly visits to the client's premises in State S as a commercial reason and the home as a fixed place of business permanent establishment of RCo. Israel, besides the day-counting method and the extension of paragraph 44.20 to founders and partners, reserves the right to find a commercial reason where a number of employees in the home jurisdiction create a meaningful group relative to their business unit, and to take into account, under paragraph 44.19, whether the individual performs activity that is core to the business or significantly contributes to value creation; on Example D it reserves the right to read the same facts as indicating that the employee's presence facilitates his quarterly client visits or enables service in a different time zone.
The practical effect of this list is that Example D stops being a reliable guide wherever one of these administrations sits on the other side. Its fact pattern — the threshold crossed with no commercial reason — is what almost every defensive position rests on, and it is the one most often contested.
Q/A
The threshold and how it is calculated
An employee moved abroad in July. How are the twelve months counted?
The window rolls and is taken in any position: paragraph 44.8 refers to any twelve-month period commencing or ending in the fiscal year concerned. A move in July means the window from July to the following June may produce a share above half even where no calendar year shows one. Every position of the window has to be tested, not only calendar years.
Is working time measured in days of presence in the country or in hours worked?
The denominator under paragraph 44.8 is total working time for the enterprise, not days of presence in the country and not calendar days. The Commentary does not fix how hours convert into days, and that is an open point: Israel has reserved the right to take the greater of two measures — full or partial working days of presence in the home jurisdiction against full working days outside it, or full or partial days actually worked from the home jurisdiction against full days worked outside it. Where the share is close to half, it is worth computing both ways.
The employment contract says "two days a week remote". Is that sufficient?
Not by itself. Paragraph 44.9 gives the calculation to the individual's actual conduct, with contractual terms and enterprise policies of assistance only to the extent that they correspond with that conduct. A contract providing for two remote days a week gives no protection where the actual pattern is four; a contract that matches the time records works as corroboration.
The commercial reason
We allowed remote work in order to give up the office. Does that help or hurt?
It hurts. Paragraph 44.16 says that an enterprise permitting work from home solely to reduce costs, including reduced expenditure on office space, does so for that purpose, and that there is no commercial reason for the individual to perform activities in the country where the home is located. At 50 per cent and above the argument confirms that the business did not need the individual's presence there. Paragraph 44.15 has the same effect on the explanation that the person could not otherwise have been retained. Nigeria disagrees with paragraph 44.16 and treats office-cost savings as a valid commercial reason producing a permanent establishment where the activity lasts more than six months — so in its direction the argument turns against the enterprise faster still.
We have customers in the employee's country of residence. Is that already a commercial reason?
Not by itself. Paragraph 44.18 states that the mere presence of customers, suppliers, associated enterprises or other persons listed in paragraph 44.17 does not lead to the automatic conclusion that a commercial reason exists. Example D is built on exactly this: an individual at 60 per cent serves clients in State S on the same footing as clients elsewhere, remotely, and visits a local client for one day a quarter — the Commentary finds no commercial reason, because the visits are intermittent and the presence of clients proves nothing on its own. The conclusion changes once the individual's presence in the State begins to facilitate the work with those clients, as in Example C.
Our employee lives in a different time zone and covers night shifts. Does that create a permanent establishment?
It can, and Example E is that case: the individual works almost entirely from State S, serves customers in State R and other jurisdictions virtually, and her being in State S gives RCo round-the-clock availability for customers in their own zones. A commercial reason is found and a permanent establishment exists, even though there is no customer in her country of residence. The counterweight is paragraph 44.18: a difference in time zones does not on its own produce that conclusion. What counts is the specific benefit to the enterprise from the coverage the difference creates.
Directors, executives and domestic rules
A director runs the company from a home abroad. Does the 50% threshold protect him?
Not fully, and along three separate lines. Paragraph 44.20 carves out the case where an individual is the only or primary person conducting the business of an enterprise, and in the Commentary's example that person's home office is a place of business of the enterprise without passing through the two stages. The German AEAO on § 12 removes management functions from its safe answer expressly, and paragraphs 6 and 7 of the same text allow a place-of-management Betriebstätte in the manager's premises. And the threshold does not address the company's tax residence at all: that is settled under Article 4 of the treaty through the place of effective management, with no quantitative thresholds.
Does Germany really give a safe answer on home offices?
For an ordinary employee, yes, and at both levels. The BMF letter of 5 February 2024 rewrote the AEAO on § 12: an employee's activity in a domestic home office generally does not create a Betriebstätte of the employer, and from the German application-state perspective a fixed place under paragraphs 1 and 4 of Article 5 of the Model Convention generally does not arise either. The answer holds even where the employer pays for the home office and its equipment, even where there is a lease over the domestic premises between employer and employee, and even where no other workplace is provided. The reason is the absence of sufficient power of disposal on the employer's side. Two qualifications: the lease changes the answer where the employer is in fact entitled to use the premises otherwise — to send other employees there, or to enter beyond occupational safety inspections — and management functions are excluded from the safe answer.
Is the Spanish ruling on pandemic remote work still relevant?
Within its limits. In ruling V0066-22 of 18 January 2022 the DGT accepted that a UK employer had no Spanish permanent establishment while its employee worked from Spain for more than 183 days in 2020: use of the home was discontinuous and lacked the required permanence, the employee stayed voluntarily, the employer kept a workplace available for him in the United Kingdom and funded nothing about the Spanish arrangement. Agency PE was dismissed separately, the employee having no authority to conclude contracts. But the DGT stated expressly that where the stay continues beyond the pandemic measures, the question is analysed case by case — and the 2025 model is what structures that assessment: share first, commercial reason second.
Consequences and defence
The threshold is crossed and a commercial reason exists. What follows?
Two independent filters, and then a separate exercise. Whether the place is fixed is tested in its own right under paragraphs 28 to 34 — Example A shows that three months within a twelve-month period do not suffice. The preparatory or auxiliary exception in paragraph 4 of Article 5, to which paragraph 44.5 refers, disposes of the question at any share where only auxiliary functions are carried on from the home. If both filters are passed and a permanent establishment exists, attribution of profits under Article 7 begins as a separate exercise, and the amount of tax turns on functions, assets and risks rather than on the fact of existence.
What should we collect in advance if staff work from several countries?
Time records broken down by country and by individual, a presence calendar, and documentation that a workplace remains available in the enterprise's country together with evidence that it is used. For the second stage, a record of whom the individual works with in the country of residence and in what volume. And a separate discipline over internal correspondence: language about savings on office space and about retaining a particular person moved from neutral to adverse in November 2025, and in an audit it is produced before anything else.
Does the 2025 Update change our existing treaties?
Not by itself. The update was approved by the Committee on Fiscal Affairs on 13 October 2025 and by the OECD Council on 18 November, and published on 19 November; it amends the Commentary on the Model Convention, and the texts of bilateral treaties are unchanged. How far the new version informs the interpretation of a given treaty depends on the State's position on the ambulatory and static approaches to the Commentaries. Reservations and positions have been entered against the block: the Czech Republic on the whole of it, Chile on paragraphs 44.6 to 44.21, India on the time threshold and the commercial-reason condition, Malaysia on the percentage in paragraph 44.8, Nigeria on paragraphs 44.14 to 44.16 and on the conclusion in Example D, and Israel on the counting method and on several paragraphs of the block.