On 19 November 2025, the OECD published the 2025 Update to its Model Tax Convention on Income and Capital (OECD Model) reflecting the latest developments in international taxation and offering enhanced guidance for the interpretation and application of tax treaties (the 2025 Update). Developed and negotiated during the past few years by the OECD’s Working Party No.1, the 2025 Update was approved by the OECD Council on 18 November 2025 and will be incorporated into the forthcoming edition of the OECD Model to be published in 2026. It is advisable for taxpayers to thoroughly review and evaluate the implications of the 2025 Update since it may already affect tax authorities’ interpretation of existing treaty provisions.  

Key changes introduced

The key changes introduced by the 2025 Update to the OECD Model include, among others, the following:

  1. Mutual Agreement Procedure (MAP): Changes to Article 25 and its Commentary

The 2025 Update introduces an additional paragraph to Article 25 the OECD Model. This paragraph confirms the role of competent authorities in determining whether a matter falls within the scope of a tax treaty for purposes of dispute resolution under the GATS (General Agreement on Trade in Services). The GATS is a WTO treaty that sets rules for liberalising trade in services. Disputes under it are resolved through the WTO’s binding dispute settlement system using panels and an appellate process.

The provision also ensures the same treatment for all tax treaties, regardless of whether they existed at the time the WTO Agreement entered into force. The text of the new paragraph is currently included in paragraph 93 of the Commentary. Its transfer to the text of Article 25 is intended to raise tax officials’ awareness of the potential impact of the GATS non-discrimination obligations regarding tax measures.

Furthermore, the 2025 Update introduces changes to the Commentary on Article 25 related to the OECD Pillar One’s Amount B, that were adopted by the OECD Council in 2024. These changes signpost specific language relating to tax certainty and the elimination of double taxation and are intended to ensure that optionality is preserved in all dispute resolution mechanisms for non-adopting jurisdictions.

  1. Permanent Establishment (PE): Changes to the Commentary on Article 5 regarding home office PE and the exploration and exploitation of extractible natural resources

The 2025 Update introduces two amendments to the Commentary on Article 5. The first amendment clarifies the circumstances in which an individual’s home could constitute a “fixed place of business” (FPOB) of the enterprise for which the individual works. In this regard, twenty new paragraphs (numbered 44.1 to 44.21) are added to the Commentary. Among other things, these paragraphs:  

  • Distinguish between personal versus business reasons for using a home office abroad. Only in case of business reasons, a PE risk arises under Article 5.1;
  • Note that a POB must be ‘fixed’ to constitute a PE, clarifying that this requires a certain degree of permanency which must be determined in accordance with paragraphs 28 to 34 of the Commentary on Article 5.1.
  • Introduce a percentage-threshold for determining the required continuity under the ‘POB’ requirement (i.e. ≥ 50% of total working time for the enterprise in any 12-month period);
  • Focus on whether the home office has been set up for ‘a commercial reason’ linked to the business of the enterprise, noting that this is a ‘prominent’ aspect to consider in the POB determination, providing specific indicia for such purposes, and excluding the retention of services of individuals and the reduction of office costs as sufficient commercial reasons; and
  • Provide five examples to illustrate whether a home or other relevant place is ‘fixed’ and thereby may constitute a POB of an enterprise.

The second amendment consists of the introduction of an optional standard provision (and related Commentary) on activities in connection with the exploration and exploitation of extractable natural resources. This alternative provision was already adopted by the OECD Council in April 2025 and is similar to the one found in some existing treaties. Explained in the additional paragraphs 170 to 203 of the Commentary on Article 5, this optional provision enlarges the taxing rights of source States by means of the introduction of a lower PE threshold based on a bilaterally agreed minimum time period. Also, the provision defines the “relevant activities” for both offshore and onshore cases, detailing how services and specialised activities should be distinguished from generic ones and specifying exclusions for certain vessel operations. Furthermore, it addresses the taxation of gains from the disposal of extractive assets and shares and considers expanded taxing rights for employment income connected to relevant activities.

  1. Associated Enterprises: Changes to the Commentary on Article 9

The 2025 Update clarifies the application of Article 9 in relation to domestic interest deductibility rules, including those recommended in the final report on BEPS Action 4. By replacing paragraphs 1 to 6 of the Commentary on Article 9, the 2025 Update acknowledges that countries may differ on applying this article to assess the balance of debt and equity funding within multinational groups.  It notes that, in all cases, the determination of whether and the extent to which a purported loan should be respected as a loan precedes the pricing of the transaction in accordance with the arm’s length principle. It then provides that, once profits are allocated using this principle, it is for the domestic law of each State to decide if and how the profits are taxed, including the deductibility of expenses, in conformity with the treaty. The 2025 Update further notes that Article 9 does not deal with the issue of whether (and under which conditions) expenses are deductible. That is a matter to be determined by domestic law, subject to the provisions of the treaty and, in particular, Article 24.4. It also notes that the consistency of procedural rules with the treaty is not a question addressed by Article 9 but should be considered under Article 24.

Furthermore, the 2025 Update notes that, if necessary, Contracting States that disagree on the appropriate adjustment to reflect profits at arm’s length, shall consult with each other to resolve the issue and avoid economic double taxation, considering the treaty’s provisions, including Article 25. However, since the calculation of taxable income and the deductibility of expenses are determined by domestic law, the Commentary notes that a denial of deduction does not automatically require a corresponding adjustment by the other Contracting State. Finally, the 2025 Update introduces corresponding updates to the Commentaries on Articles 7 and 24 to align with these changes.

  1. Exchange of Information: Changes to the Commentary on Article 26

The 2025 Update provides an express clarification that information obtained through exchange of information may be used for tax matters concerning persons other than those in respect of which the information was initially received. In this regard, the 2025 Update notes that the receiving Contracting State is not required to inform or to request authorisation from the sending Contracting State regarding such use.

Furthermore, it reflects the agreed interpretative guidance on taxpayer access to exchanged information and the disclosure of non-taxpayer-specific information derived from such exchanges. Concerning the first aspect, the 2025 Update notes that the information exchanged (whether obtained with respect to one or multiple taxpayers) may also be communicated to the taxpayer (or his proxy) to the extent that such data has a bearing on the outcome of a tax matter concerning such taxpayer. Regarding the latter aspect, the 2025 Update states that confidentiality rules also apply to reflective non-taxpayer specific information (i.e. that generated from exchanged information, such as statistical data and non-taxpayer specific notes, summaries, and memoranda). However, it notes that such information may only be disclosed to third parties if it does not reveal taxpayer identities and both States agree in writing that disclosure will not impair tax administration, including through multilateral processes like peer review. It is further clarified that this specific case of disclosure is indeed an exception to the general prohibition of disclosing the exchanged data to persons or authorities not mentioned in paragraph 2 of the Commentary on Article 26.

  1. Other changes and non-inclusion of GloBE related updates

The 2025 Update also introduces other formal changes to ensure consistency across the OECD Model following the updates described in the sections above. Furthermore, it includes changes and additions made to the specific observations and reservations of OECD Member countries and the individual positions of non-Member economies.

Importantly, while OECD’s Committee on Fiscal Affairs earlier approved changes to the Commentary on Article 1 and on Articles 23 A and 23 B dealing with the interaction of the GloBE Rules and bilateral tax treaties, these changes are not included in the 2025 Update. These changes will be considered separately by the OECD Council once further work on the GloBE Rules (including, the proposed side-by-side solution) has been finalised.

Next steps and implications  

The changes, additions and clarifications introduced by the 2025 Update will be incorporated in the forthcoming revised condensed and full editions of the OECD Model, to be published in 2026. Even when most of the changes introduced by the 2025 Update concern the Commentaries and the only change to Article 25 of the Model Treaty has not yet been reflected in countries’ current treaty networks, it is advisable for taxpayers to thoroughly review and evaluate their implications. This is because the OECD Model and its Commentaries are widely used by both OECD Members and non-Members as a basis for applying and interpreting bilateral tax treaties. Thus, with a dynamic interpretation, the 2025 Update may already affect how tax authorities worldwide will apply existing treaty provisions.  

Regarding the implications of the 2025 Update, it is evident that among the many changes included therein, one of the most important and expected amendments is the new guidance on Home Office PE. This guidance particularly focuses on situations where individuals engage in cross-border remote work from their home or other relevant place (e.g., a second home, holiday rental, etc.). It aims to resolve the ambiguities and divergences that currently exist across jurisdictions regarding the interpretation of the POB and the ‘disposal’ requirement laid down in the Commentary on Article 5, paragraph 1. Thus, the new guidance does not address Agency nor other types of PE risks raised by remote workers. It is expected that this new OECD guidance will have a strong influence on countries’ interpretation of the PE concept and its requirements in Home Office situations, enhancing harmonisation and tax certainty for enterprises facilitating this type of work arrangements in cross-border situations. However, because of the specific wording and caveats in the new OECD guidance, it is still possible that countries will follow divergent approaches in its application. Therefore, we recommend reviewing the OECD guidance and its impact in jurisdictions where your company has remote workers, evaluate if the new criteria create PE risks for your remote staff, and revise your company’s remote work policies to align with the updated OECD guidance.

If you have any questions following this publication, please feel free to contact one of our experts.