On 18 November 2025, the OECD Council approved the latest update to the OECD Model Tax Convention and its Commentary. The update does not change the legal definition of a permanent establishment in Article 5, but it provides new and clearer guidance on how that definition should apply to cross-border home office arrangements. This includes practical criteria for assessing when whether a home office is a “place of business” of an enterprise under Article 5 of the Model Tax Treaty.
For countries like Norway - known for applying a relatively strict domestic PE threshold- this new guidance is particularly relevant. While Norway’s domestic rules remain unchanged, the updated Commentary will influence how Norway and its treaty partners interpret existing tax treaties. The update is highly relevant for multinational companies with employees working partly from Norway.
The challenge: Home offices across borders
Today, many employees work partly or fully from another country – from a primary home, a holiday home, or a temporary rental.
This raises an important question: when does the employee’s home become a “fixed place of business” for the employer under Article 5 (1)?
The new Commentary gives clearer guidance on this.
The Norwegian perspective
Under Norwegian domestic law, companies conducting business in Norway are generally subject to taxation. However, Norway has entered into more than 90 tax treaties, which limits Norway’s taxation rights.
According to Article 7, read together with Article 5 of the Model Tax Convention, a foreign company may only be taxed in the Contracting State if it has a permanent establishment there. Norway, however, applies a particularly strict PE threshold in cases involving home offices.
The new OECD Commentary offers guidance that could affect how PE assessments are carried out in home-office situations when a treaty applies, but the extend and timing of how this will be applied in practice may vary.
In practice,
- foreign companies with employees based partly in Norway may face lower PE risk (if the treaty follows the OECD Model)
- Norway may still apply stricter domestic rules when no treaty applies
Key OECD guidance in the 2025 update
- The 50% rule - A practical starting point: The Commentary now states that a home or other relevant place will generally not be considered a place of business of the enterprise if the individual works from that place for less than 50% of their total working time for that enterprise over any twelve-month period commencing or ending in the fiscal year concerned.
This is not an absolute rule, but it provides a helpful safe harbor. If working time from home exceeds 50%, a further assessment is required. - The “Commercial Reason” test: If the employee works more than 50% from home, the next step is to ask whether there is a commercial reason for performing the work from that country. A commercial reason exists when the employee’s presence facilitates the company’s business, for example:
- regular client meetings in that country
- managing suppliers or partners located there
- performing services that require physical presence
- interacting with colleagues or resources located in that country
If the employee is working abroad only for personal reasons, that will normally not create a PE.
Similarly, if the company allows remote work to attract talent or reduce office costs, this should not be considered a commercial reason tied to business activity in that country.
Practical OECD examples
Example A – No PE (Temporary Use)
An employee works from a rented place in another country for three months after a holiday. This is not a PE because the use of the location is too short to be considered fixed. The same applies if the employee stays abroad for private reasons, such as caring for a sick relative. Personal motives do not create permanence.
It does not matter whether the employee owns the place (e.g., a holiday home). What matters is how long business activities are carried out there - not the personal costs of maintaining the property.
Bottom line: Since the place is not fixed, the analysis never reaches the 50% rule or the commercial-reason test.
Example B – No PE (Employee works from home less than 50%)
An employee works about 30% of annual hours from a home in another country. The home is considered fixed (used regularly throughout the year), but because the employee works less than 50% of the time from that location, it is not considered a place of business of the employer.
Therefore: No PE.
Example C – PE Exists (Employee works more than 50% + commercial reason)
The employee works 80% from home and provides services to clients located in that country. His physical presence directly facilitates the company’s business in that State, which constitutes a commercial reason.
Combined with working more than 50% of the time from that location, this creates a PE.
Example D – No PE (Employee works more than 50% but no commercial reason)
The employee works 60% from home but serves clients globally and rarely meets clients locally. Although the home office is used more than half of the time, there is no commercial reason for the employee to be in that country.
Therefore: no PE.
Example E – PE Exists (Employee works more than 50% + commercial reason based on time-zone)
The employee works almost exclusively from home in another country and provides real-time or near real-time services to customers located in different time zones. By being in that country, she can provide continuous availability to those customers.
Her presence therefore serves a commercial reason, and because she works more than 50% from that location, the home office constitutes a PE.
What this means for foreign companies
- More predictability: The 50% threshold offers a clearer starting point for PE assessment.
- Documentation Is essential: Companies should keep records of:
- how much time the employee works in each country
- why the employee is located there
- whether activities create local business value
- Not automatically binding: The update applies to the Commentary, not treaty text. They guide interpretation but do not override specific treaty wording.
- Future Impact on treaties: Countries, including Norway, will likely rely on this guidance when applying current tax treaties and when negotiating new ones.
Conclusion
The 2025 OECD Commentary update provides much-needed clarity on when cross-border home offices may create a permanent establishment.
The key takeaways are:
- a practical 50% threshold, and
- distinguishes clearly between business-driven and employee-driven remote work.
For companies with employees working partly from Norway, the update may reduce PE risk - provided they can document why the employee is working abroad. While the new guidance will be an important interpretive aid, its practical impact in Norway will depend how tax authorities apply it over time and in specific cases. Considering Norway’s traditionally strict approach to home-office situations, we recommend carrying out a careful PE assessment for each specific arrangement.
