Determining whether an employee working across borders creates a taxable presence — known as a Permanent Establishment (PE) — in another jurisdiction remains a critical issue for international businesses. This question has become even more relevant as flexible working models, remote arrangements, employers of record, and cross-border contracting continue to grow.

To address these evolving practices, the OECD has released updated commentary that provides greater clarity on when cross-border working arrangements may give rise to a PE. Below, we outline the key points from the guidance and what they mean for employers in practice.

OECD’s Updated Guidance: Key Principles Explained

The revised OECD commentary focuses on when a “fixed place of business” PE may be created due to an individual working in another country. Two core conditions must be met for such a PE to arise.

1. The place of business must be “fixed”

A location will only be considered a fixed place of business if it is used with a sufficient level of permanence and regularity.

Importantly, the OECD introduces a practical benchmark:
If an individual works from an overseas home or similar location for less than 50% of their total working time over any 12-month period, that location will generally not be regarded as a place of business of the enterprise.

This clarification provides welcome guidance for employers managing hybrid or temporary overseas working arrangements.

2. There must be a genuine commercial reason

Even where work is carried out regularly from another jurisdiction, a PE will only arise if there is a commercial rationale for the employee’s physical presence there.

A commercial reason may exist where the location:

• Enables direct interaction with local customers or suppliers
• Facilitates access to a specific market, expertise, or infrastructure
• Avoids the need for the business to maintain separate premises in that jurisdiction

On the other hand, working arrangements driven purely by personal preference, talent retention strategies, or general cost efficiencies — without a clear business need to operate in that country — would typically not meet this test.

Practical Implications for Employers

While the updated guidance offers greater flexibility and may support more occasional or ad hoc overseas working, PE risk has not been eliminated entirely. Particular caution is still required for senior or decision-making employees, as the separate dependent agent PE rules may still apply regardless of where the work is performed.

That said, the new commentary provides clearer parameters for assessing exposure and justifying internal decisions. In response, businesses should take proactive steps to strengthen their compliance frameworks.

Recommended Actions for Businesses

To effectively manage PE risk in a global workforce environment, employers should:

• Monitor and track the number of days employees work outside their primary jurisdiction
• Document the business purpose for any overseas working arrangements
• Implement a clear global mobility or remote-working policy that defines permitted locations, duration thresholds, and associated tax and compliance implications

Having these measures in place not only reduces risk but also supports consistent decision-making across the organisation.

How Access Financial Can Help

At Access Financial, we continuously monitor the latest legislative and regulatory developments across jurisdictions to help businesses navigate complex international employment and tax considerations with confidence. If you would like to understand how Permanent Establishment rules may affect your workforce model — or need tailored guidance on cross-border employment structures — our team is here to help.

📩 Get in touch with us at [email protected] to learn more.