OECD’s 2025 Model Tax Convention update: What it means for multinationals

The OECD’s 2025 update to the Model Tax Convention marks a significant shift in how tax treaties address cross border remote work, natural resource activities and a number of important technical issues around transfer pricing, dispute resolution and exchange of information.

For multinational groups, these are not abstract drafting tweaks: they will shape how tax authorities analyse permanent establishments (PEs), interest deductibility, MAP cases and the taxation of extractive activities for years to come.

Below is a high-level overview for large corporate taxpayers, together with some thoughts on how DLA Piper’s tax, employment and wider teams can help you respond.

 

Overview of the 2025 OECD Model update

The 2025 update, approved by the OECD Council in November 2025, focuses on six main areas:

• Cross border remote work and home office permanent establishments (Commentary on Article 5);
• A new optional article on activities connected with the exploration and exploitation of natural resources (Commentary on Article 5);
• Clarifications on the interaction of Article 9 with thin capitalisation and interest deductibility rules, with knock-on changes to Articles 7 and 24;
• Enhancements to mutual agreement procedures (MAP) and arbitration, including signposting to Amount B guidance (Article 25 and Commentary);
• Clarification of how tax treaty provisions interact with the World Trade Organisation (WTO)’s General Agreement on Trade in Services (GATS) dispute resolution framework (new paragraph 6 to Article 25); and
• Expanded guidance on exchange of information and taxpayer confidentiality (Commentary on Article 26).

The OECD emphasises that the update is intended to give greater certainty on short-term cross border remote work and on the taxation of income from natural resource extraction, reflecting structural changes in how and where business is carried on post COVID.

Although the Model is not law, it strongly influences both future treaty negotiations and the interpretation of existing treaties by many tax authorities and courts. For large multinationals, it is therefore prudent to treat this update as an early warning of where treaty practice and audits are heading.

 

Cross border remote work: new home office PE guidance

A dedicated section on “cross border working from a home or other relevant place”

The most immediately relevant change for many groups is a new section of the Commentary on Article 5 titled “Cross border working from a home or other relevant place”. It deals directly with scenarios where employees or other individuals work from:

• Their home in another treaty state; or
• Another “relevant place” such as a second home, holiday rental or a relative’s home in another state.

The Commentary now walks through, in some detail, when such a place may be regarded as a fixed place of business through which the business of the enterprise is carried on and, therefore, creating a PE.

The 50% working time threshold

A key new element is a quantitative indicator for when a home or other relevant place is generally not treated as a place of business:

• If an individual works from the home/relevant place for less than 50% of their total working time for the enterprise over any 12-month period, that place will generally not be considered a place of business of the enterprise (and, therefore, cannot be a fixed place PE), unless exceptional facts suggest otherwise.

This operates as a kind of safe harbour for relatively limited or sporadic cross border remote work. It won’t override all other facts, but it gives multinationals a concrete marker to build into internal policies and tracking systems.

When ≥50% remote work may create a PE

If an individual works from the home or other relevant place for 50% or more of their working time over a 12-month period, whether a PE exists will then depend on the broader facts and circumstances. The Commentary highlights that:

• The place must still be “fixed” (sufficient degree of permanence) and used in carrying on the business of the enterprise.
• Crucially, there must often be a “commercial reason” for the individual to perform their activities from that State – it is not enough that the individual simply prefers to live there.

A commercial reason is more likely where, for example, the individual’s presence in that State:

• Facilitates regular in-person or real-time interaction with customers, suppliers or group entities;
• Gives access to local resources or expertise needed for the business;
• Substitutes for premises that the enterprise would otherwise have to rent in that State.

By contrast, the Commentary indicates there is no commercial reason where the enterprise allows home working solely to attract or retain staff, or simply to reduce office costs, without any specific link between the State where the person works and the business’ markets or operations.

Illustrative examples – and what they mean in practice

The OECD includes several examples that illustrate how these tests may apply, including cases where:

• An employee works remotely from another State for a short three-month period during a year – no fixed place PE;
• An employee works almost exclusively from a home in another State, providing real-time services to customers in different time zones – in that case, the home is both fixed and used for business with a clear commercial reason for the employee’s presence; a PE may arise.

Implications for multinationals

For large employers with “work from anywhere” or hybrid policies:

• The OECD has lowered the risk of a PE arising from short-term, life-style-driven cross border remote work, provided it is carefully controlled and monitored.
• At the same time, the guidance clearly supports a PE finding where staff work long-term from another country to serve that market or support the group’s business there, even if the company has no formal office.

How DLA Piper can help

DLA Piper’s tax and employment teams can work together to help you:

• Design or redesign global remote working and “digital nomad” policies, so they align with the new Commentary, including the 50% threshold and the commercial reason test;
• Build data driven tracking frameworks (days, working time splits, local business interactions) to document why certain remote arrangements should – or should not – give rise to a PE;
• Review existing remote work arrangements (including senior management, sales and client-facing staff) to identify PE hotspots and remediation options; and
• Align employment contracts, HR policies and global mobility terms with tax requirements, including working time expectations, place of work clauses and approval processes for cross border remote work.

 

New optional article on natural resources and lower PE thresholds

The 2025 Update introduces a freestanding optional article that treaty partners can adopt to deal with activities connected with the exploration and exploitation of “extractible natural resources” such as oil, gas and minerals.

Scope and “relevant activities”

The new provision allows states to define “relevant activities” either:

• As offshore activities related to the seabed, subsoil and their natural resources; or
• As a broader concept covering both offshore and onshore finite natural resources, plus specified onshore activities connected with offshore operations.

This gives resource rich countries flexibility to extend the treaty’s source taxing rights to a wide range of exploration and support activities, including those carried out onshore in support of offshore projects.

Lower PE thresholds and extended taxing rights on gains

The “centrepiece” of the new article is a lower PE threshold: relevant activities will be deemed to be carried on through a PE once they exceed a bilaterally agreed period (shorter than the standard PE thresholds) within any 12-month period.

In addition, the article provides that the source State may tax gains derived from:

• Immovable property and exploration/exploitation rights relating to natural resources in that State;
• Movable property forming part of the business property of a PE used for relevant activities; and
• Shares and comparable interests deriving more than 50% of their value from such property.

Implications for multinationals

For businesses in the energy, mining and oil & gas sectors, and for service providers supporting those industries, this development will likely:

• Encourage resource rich countries to push for this alternative article in new treaties and renegotiations, particularly developing economies seeking to reinforce source taxation;
• Bring shorter term exploration campaigns and specialised service projects more clearly into the source country tax net;
• Increase the need to consider source country taxation of gains on disposals of project interests, infrastructure or resource rich holding structures.

How DLA Piper can help

DLA Piper’s tax, energy and projects teams can support you by:

• Modelling PE and source country tax exposures for exploration, drilling, seismic and related services, including under likely future treaty terms;
• Advising on holding and exit structures for resource assets in light of the new rules on taxing gains;
• Supporting treaty policy engagement and lobbying where you are involved in major strategic investments; and
• Coordinating with our environmental, regulatory and infrastructure teams on wider project structuring, local law and ESG considerations.

 

Transfer pricing, thin capitalisation and interest deductibility (Article 9)

The Commentary on Article 9 has been significantly reworked to:

• Reaffirm the central role of the OECD Transfer Pricing Guidelines; and
• Clarify the interaction between Article 9 and domestic rules on thin capitalisation and interest limitation, including the BEPS Action 4 recommendations.

Primacy of the OECD Transfer Pricing Guidelines

The updated Commentary stresses that Article 9 is the authoritative treaty statement of the arm’s length principle, and that the Transfer Pricing Guidelines, including the new Chapter X on financial transactions, set out the internationally agreed interpretation.

Tax authorities are reminded that any rewriting of accounts under Article 9 should follow the arm’s length principle as elaborated in the Guidelines.

How Article 9 interacts with thin cap and interest limitation rules

The Commentary explains that countries may take different approaches to the debt/equity mix of group entities:

• Some use accurate delineation of the transaction (ie transfer pricing analysis) to decide whether a loan should be respected as debt;
• Others rely on domestic thin capitalisation or similar rules to recharacterise or limit interest deductions.

Crucially, the OECD clarifies that:

• Article 9 does not prevent the application of domestic thin cap or interest limitation rules, provided these effectively align taxable profits with an arm’s length outcome; and
• Once profits have been allocated in accordance with the arm’s length principle, whether and how expenses are deductible is a matter for domestic law, subject to the non-discrimination protections in Article 24.

The Commentary explicitly cites interest limitation rules such as the fixed ratio and group ratio rules recommended in BEPS Action 4 as examples of domestic rules that may disallow interest even where transactions are otherwise arm’s length.

Implications for multinationals

• Treaty arguments against interest limitation or earnings stripping rules are likely to have less traction, as the OECD has confirmed their general compatibility with Article 9;
• Domestic thin cap and interest limitation rules can bite even if your intercompany financing is arm’s length, potentially creating double taxation where corresponding adjustments are not available in the other jurisdiction;
• There will be increased pressure to ensure alignment between transfer pricing policies and domestic interest limitation regimes, particularly in highly leveraged groups and financing hubs.

How DLA Piper can help

Our international tax and transfer pricing teams can:

• Review your cross-border financing structures in light of the updated Commentary and domestic BEPS Action 4 implementation;
• Help design intercompany funding and cash pooling arrangements that are robust under both Article 9 and local interest limitation rules; and
• Support MAP and APA strategies where interest disallowances risk double taxation, including in cases involving financial transactions and Amount B (see below).

 

Dispute resolution, Amount B and interaction with GATS (Article 25)

New Article 25(6): keeping tax disputes out of GATS

The 2025 Update adds a new paragraph 6 to Article 25 dealing with the interaction between tax treaties and the WTO’s General Agreement on Trade in Services (GATS).

In essence, it:

• Clarifies that, for the purposes of GATS Article XXII(3), a measure only “falls within the scope” of the tax convention if it is a measure covered by Article 24 (non-discrimination); and
• Provides that any dispute between the treaty partners about whether a measure falls within that scope must be resolved under the MAP (Article 25(3)), or another process agreed by the states, rather than via GATS dispute settlement.

For taxpayers, this is primarily a sovereign to sovereign allocation of forums, but it reinforces the centrality of the MAP process for resolving tax disputes that raise discrimination issues.

Easier access to MAP – and earlier

The Commentary to Article 25 has also been expanded to clarify when taxpayers can initiate MAP. It now confirms that a taxpayer can access MAP as soon as it is probable that taxation not in accordance with the Convention will arise, for example:

• When a change in domestic law would clearly create a treaty conflict;
• When a self-assessment requirement forces a reporting position that is inconsistent with the treaty; or
• When a transfer pricing law requires a higher taxable income than the taxpayer’s actual prices and there is significant doubt that a corresponding adjustment will be available in the other State.

This is particularly relevant for large groups facing early stage or structural issues (eg new interest limitation rules, digital services taxes or evolving interpretations of PE and profit attribution).

References to Amount B in MAP and arbitration

The update also adds specific references to the Annex to Chapter IV of the Transfer Pricing Guidelines – the Annex developed as part of the Consolidated Report on Amount B, which will standardise pricing for baseline marketing and distribution activities.

The Commentary now indicates that, in MAP and arbitration cases involving Article 9 (associated enterprise profits), competent authorities must have regard to, and follow where relevant, specified paragraphs of that Annex, and taxpayers should also consider them when making MAP submissions.

This is designed to:

• Promote consistent use of Amount B concepts in dispute resolution, even for jurisdictions that may not adopt Amount B in full; and
• Preserve optionality for non-adopting jurisdictions, while still giving taxpayers a clearer path to eliminating double taxation.

How DLA Piper can help

Our teams have extensive experience with:

• Designing and implementing MAP and arbitration strategies across multiple jurisdictions, including early engagement where new laws are introduced;
• Assessing whether Amount B type return profiles are suitable for your distribution footprint and how they interact with existing APAs and controversy history; and
• Coordinating triage and governance for disputes, ensuring that employment, regulatory and commercial considerations (eg customer relationships) are factored into settlement strategies.

 

Exchange of information and taxpayer confidentiality (Article 26)

The updated Commentary on Article 26 clarifies both how exchanged information may be used and the scope of confidentiality obligations, including in relation to information that indirectly reflects taxpayer data.

Key points include:

• Competent authority correspondence (including information requests) is explicitly covered by confidentiality rules, although the requested State may disclose the minimum content necessary to obtain the information sought;
• The concept of “reflective non-taxpayer specific information” (eg statistics, aggregated or anonymised data, summaries and memoranda) is introduced; such information may be disclosed to third parties if anonymised and if the sending and receiving States agree that disclosure will not impair tax administration;
• Information exchanged under Article 26 can be used not only for the taxpayer to whom it directly relates, but also in respect of other taxpayers, provided it is used for the purposes set out in Article 26(2). Tax authorities need not inform or seek consent from the sending State for such use; and
• Exchanged information remains protected even where domestic freedom of information or access to documents regimes would otherwise allow more disclosure.

Implications for multinationals

• There is likely to be continued growth in large scale data driven audits, where information provided in respect of one entity is used to risk assess or challenge positions across your wider group;
• Groups should expect exchanged information to “travel” within and across administrations more freely – reinforcing the importance of consistent positions and documentation globally; and
• When engaging with tax authorities, it will be increasingly important to consider how information may be reused in other contexts, including in other countries.

DLA Piper’s tax team can support on information governance strategies, including aligning tax documentation practices with broader data protection, governance and litigation risk frameworks.

 

What should large corporates do now?

Even before individual treaties are amended, the 2025 Commentary will influence how tax authorities interpret existing treaty language. In practical terms, multinationals may wish to:

1. Map remote working patterns across the group
• Identify employees and contractors working from other jurisdictions and measure their working time splits.
• Flag cases where individuals spend close to or above 50% of their time in a foreign home office and assess whether there is a commercial reason for their presence there.
  
  
2. Review remote work, mobility and employment policies
• Integrate tax driven thresholds and approval rules into HR and global mobility processes.
• Align employment law, data privacy and immigration advice with tax risk assessments.
  
  
3. Assess exposure to the natural resources article
• For extractive and energy groups, and key service providers, review existing and proposed projects in resource rich countries to anticipate how negotiations may change.
• Consider the impact on project structuring and exit strategies, especially where gains may be taxable in the source State.
  
  
4. Stress test financing and TP structures
• Evaluate how interest limitation and thin cap rules interact with your current intercompany funding arrangements in light of the clarified Article 9 Commentary.
• Check whether your TP documentation and models align with the OECD’s latest guidance, including for financial transactions and potential Amount B coverage.
  
  
5. Strengthen dispute resolution governance
• Put in place a coordinated approach to MAP and arbitration, including early issue spotting where law changes may create treaty conflicts.
• Consider where proactive engagement (APAs, cooperative compliance programmes) may be preferable to relying on ex post dispute resolution.
  
  
6. Align tax information governance with broader risk management
• Ensure that positions taken in one country can be defended globally, recognising that information will be shared and reused.
• Coordinate tax, legal and compliance teams on what is shared, when and how with tax authorities.