Remote Work and the Creation of a Permanent Establishment – An Analysis in Light of the OECD Model Tax Convention Commentary
20.06.2026
In today’s world of advancing digitalization and widespread internet access, remote work has become increasingly popular. Companies frequently allow employees to perform their duties from virtually anywhere in the world. On the one hand, this arrangement serves as an employee benefit that enhances an employer’s attractiveness; on the other, it may contribute to business cost optimization, including reducing office space expenses.
While this model offers obvious advantages, it may also involve certain risks. In this context, the tax implications of remote work arrangements are particularly important. An employee working from a country other than the company’s country of residence may, under certain circumstances, lead to the creation of a permanent establishment (PE) in the country where the remote work is performed.
This issue has practical significance because it may result in an obligation to pay tax on a portion of the company’s profits in the country where the remote work is carried out.
The issue of permanent establishment in the context of remote work has been addressed in the updated Commentary to the OECD Model Tax Convention. Reflecting modern business realities, the authors of the Commentary introduced detailed guidance on the circumstances and conditions under which a remote employee’s workplace (particularly their home) may be regarded as a permanent establishment of the enterprise.
Nature and Importance of the OECD Model Tax Convention Commentary
The Commentary to the OECD Model Tax Convention is not a source of universally binding law. In practice, however, it plays a significant role, as it is widely used by both tax authorities and administrative courts when interpreting the provisions of double taxation treaties.
An example of the widespread reliance on the OECD Commentary can be found in a recent individual tax ruling issued by the Director of the National Revenue Information Service (KIS) on 8 June 2026 (No. 0111-KDIB1-2.4010.105.2026.2.BD) concerning remote work in the context of permanent establishment. In that ruling, the authority expressly stated that: “the tax obligations of entities resident in different countries should be assessed taking into account the provisions of the applicable double taxation treaty as well as the OECD Model Tax Convention and its Commentary.”
Remote Work and Permanent Establishment
The OECD Commentary indicates that, in the case of remote work, a particular challenge lies in determining whether an employee’s home (or another location, such as a rented apartment or holiday home) may be considered a “place of business” of the enterprise.
At the same time, the Commentary does not provide rigid rules that automatically determine whether a permanent establishment arises when work is performed remotely from an employee’s home. Instead, it identifies circumstances that are relevant when assessing this issue.
According to the OECD Commentary, the following key criteria should be considered when determining whether a remote workplace may constitute a permanent establishment:
1. Extent of Use of the Location (50% Threshold)
If an employee works from home for less than 50% of their working time on an annual basis, the location should generally not be regarded as a place of business of the enterprise. Exceeding the 50% threshold does not automatically create a permanent establishment; rather, it triggers the need for a broader analysis based on all relevant facts and circumstances.
The Commentary also emphasizes that periods during which a location is used may be aggregated if they recur regularly over successive years.
2. Nature of the Location as a “Place of Business”
The mere fact that work is performed from home does not automatically make the home a place of business of the enterprise. If the use of the location is occasional or incidental, it will generally not be considered a permanent establishment. The same applies where the activities carried out for the enterprise are of a preparatory or auxiliary nature.
An employee’s home may only be regarded as a place of business of the enterprise where it is used on a continuous basis and is functionally connected to the enterprise’s business activities.
3. Existence of a Commercial Reason
The most significant criterion is the existence of a commercial reason for performing work in a particular country. This refers to a genuine connection between the employee’s location and the business activities of the enterprise.
A commercial reason may exist, in particular, where:
- the employee interacts with customers or suppliers in that country;
- the employee conducts sales activities or develops the local market;
- the employee provides services requiring physical presence;
- the employee ensures service availability across specific time zones; or
- the employee cooperates with local partners or research institutions.
Conversely, a commercial reason is generally absent where:
- remote work is based solely on the employee’s personal preference;
- the enterprise allows remote work merely to reduce costs; or
- contacts in the country are occasional or marginal in nature.
Practical Implications
The updated OECD Commentary clearly indicates that remote work in the context of permanent establishment is no longer a marginal issue. Furthermore, the clarification of the relevant assessment criteria may signal increased scrutiny by tax authorities of cross-border remote work arrangements, particularly where such arrangements are long-term and functionally linked to the enterprise’s business activities.
Whether a permanent establishment exists must be assessed based on the specific facts and circumstances prevailing during the relevant period. Ultimately, the determination should always be made under the provisions of the applicable double taxation treaty.
