For US MNEs with employees in Europe, a key question is whether an employee’s home office could create a PE for the US-based employer. Historically, companies were primarily concerned about PE risks when setting up physical offices, warehouses, or agents abroad. Now that flexible work has become widespread, with many modern US businesses, from tech startups to consulting firms, operating fully remote teams, the analysis has fundamentally changed.

Recent OECD guidance has provided some clarity on when remote working can create a PE. The OECD’s November 2025 update to the commentary on its Model Tax Convention (the Commentary) addresses home office PE risks under modern working arrangements. The Commentary introduces a 50% working-time threshold: if an employee works less than 50% of their time from home in another jurisdiction during a 12-month period, that location generally is not considered a fixed place of business of the employer (and thus no PE arises). If the employee spends 50% or more of their time working from home, further analysis is needed. At that point, the key factor becomes whether there is a genuine “commercial reason” for the employee’s presence in that country.

In practice, a “commercial reason” means the employee’s physical presence abroad facilitates the company’s business. This may include regular engagement with local customers, suppliers or (other) partners. It may also exist where, absent the home office, the enterprise would use other premises in that state. In such cases, the home office could be viewed as a fixed place of business of the company, and a PE with local corporate income tax exposure may arise. By contrast, if an employee works remotely from another country purely for personal convenience or cost-saving (with no substantial local business interactions), no PE should arise, even if they exceed the 50% threshold, because the company has no real business presence through the home.

A key practical takeaway is that US MNEs should implement clear remote work policies to manage PE risks. It is essential to monitor the amount of time employees spend working from abroad, particularly where significant time is spent overseas for business-driven purposes (e.g., serving local clients). In cases of ambiguity, US MNEs may also consider obtaining advance tax certainty. Certain European jurisdictions (including the Netherlands) are willing to issue rulings confirming the absence of a PE when the relevant conditions are not met.

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