Update to the OECD Model Tax Convention on Double Taxation

On 18 November 2025, the Organisation for Economic Co-operation and Development (OECD) approved an update to the OECD Model Tax Convention on Double Taxation on Income and Wealth, representing the most significant change since 2017.

New OECD recommendations on working from home

One of the main points of this update is the recommendation on the establishment of a permanent establishment in the case of home office work. As teleworking is becoming more common and many employees perform their work duties from other countries, questions are increasingly being raised as to whether such cross-border working arrangements can lead to the creation of a permanent establishment of the company in the other contracting state.

The new wording of the commentary on Article 5 (Permanent Establishment) recommends that the following two conditions should be met simultaneously for a permanent establishment to arise on the basis of a home office:

• The individual works from home (or another relevant location in another country) for at least 50% of his or her total working time during any 12-month period, while
• there are certain business reasons on the part of the employer why the employee should carry out the activity in the other contracting state.

A business reason is defined as the performance of activities that facilitate the operation of the business. This may include situations where there are persons or resources in the country that the company needs for its business activities. Examples may include face-to-face meetings between an employee and the company’s customers, developing a new customer base in a given country, identifying business opportunities in person, etc.

Czech Republic and reservations to the new rules

We consider it important to mention that the Czech Republic has accepted the above amendment to the commentary with reservations. In particular, it disagrees with the narrowly defined conditions that limit the possibility of establishing a permanent establishment when working from home in other circumstances. Nevertheless, despite the reservation of the Czech Republic, we recommend to companies that are members of a multinational group and use a cross-border work arrangement to pay close attention to the amendment to the commentary, review their internal rules on homeworking, if necessary, and check the approach of the particular country to the establishment of a permanent establishment on the basis of homeworking.

As regards other changes, an optional bilateral arrangement for a shorter time test for the establishment of a permanent establishment in the case of natural resource extraction is added to the commentary to Article 5. There are also changes to the commentary to Article 9 (Associated enterprises), which specifies the application of the Article in relation to group financing and the rules for tax deductibility of interest. In addition, a single new paragraph has been added to the Model Agreement in Article 25 (Dispute settlement by agreement), which concerns dispute settlement under the General Agreement on Trade in Services (GATS).