The Organisation for Economic Co-operation and Development (‘OECD’) Model Tax Convention on Income and on Capital (‘MTC’)^[1], first issued in 1963, has been the lodestar for negotiating, interpreting, and applying bilateral tax treaties. Over successive updates, this model has enabled jurisdictions to converge on common concepts such as Permanent Establishment (‘PE’), thereby lending coherence and predictability to treaty networks worldwide.

The 2025 update^[2] continues that trajectory, with targeted changes to articles, commentaries and country positions, including a significant elaboration of the commentary on Article 5. It refines the interpretative framework of PE rules in light of modern cross‑border working practices. The update acknowledges that individuals increasingly perform their duties from locations in a contracting state that are neither the premises of their employer nor of a related enterprise, such as a home, second home, or other privately controlled space (collectively referred to as ‘home’) and thus, clarifies situations in which such home may constitute a place of business of an enterprise.

While the recent update does not alter Article 5 itself, it sharpens the commentary to reflect modern remote‑work realities.^[3] The revised commentary sets out a fact-driven analysis which remains grounded in the classic tests of disposal, permanence and the nature of activities.

Firstly, it articulates a quantitative threshold wherein, as a general rule, when an individual works from a home in the other contracting state for less than 50 percent of total working time during any 12‑month period, such place would not be treated as a place of business of the enterprise. The time threshold, though not being conclusive, triggers a closer enquiry into whether a ‘commercial reason’ exists for performing business activities through the specific home in that state.

The update further clarifies what is meant by ‘commercial reason’. It distinguishes genuine business‑driven physical presence from arrangements motivated solely by employee retention or cost‑saving. Physical presence could be required for meeting customers, cultivating opportunities, managing suppliers, collaborating with local resources, or other such activities. Crucially, the commercial reason test does not require the activities to be of a ‘productive character’. Further, it excludes activities of intermittent or incidental nature. The commentary also cautions against over‑reading proximity: the mere presence of customers or suppliers or existence of a different time zone alone is insufficient to constitute a place of business.

India’s reservation^[4] is categorical. India does not agree with the new conditions, particularly the 12‑month 50% threshold and the commercial reason criterion, for treating an individual’s home as a place of business. India further clarifies that, in such cases, the home can be considered at the disposal of the enterprise, thereby constituting a PE under Article 5.

[1]   https://www.oecd.org/en/topics/oecd-model-tax-convention-on-income-and-on-capital.html

[2]   https://www.oecd.org/en/publications/2025/11/the-2025-update-to-the-oecd-model-tax-convention_c7031e1b.html

[3]   Includes new paragraphs 44.1 to 44.21 to the commentary on Article 5.

[4]   Replaces paragraph 55 of the positions on Article 5 and its commentary.