The Organisation for Economic Co-operation and Development (OECD) has recently published an update to its tax treaty model. This update offers more detailed guidance on taxing rights for remote work performed online and income from natural resource extraction (OECD, 2025).
The OECD first introduced its tax treaty model in 1963, known as the OECD Model Tax Convention on Income and on Capital. This model has since served as a framework for OECD member countries when negotiating bilateral tax treaties with other nations. The primary objective of these treaties is to minimize the risk of double taxation, which can hinder cross-border trade and investment.
Over time, the model has undergone several refinements. A significant development is the introduction of the Multilateral Instrument (MLI), designed to combat base erosion and profit shifting. The MLI allows countries to amend their bilateral tax treaties without going through lengthy renegotiation processes. With mutual agreement, jurisdictions can adjust their treaties to reflect the evolving landscape of global trade and investment.
Since its launch in 2017, the MLI has been adopted by over 100 tax jurisdictions, showcasing the OECD's success in creating a more flexible and efficient mechanism for tax treaty revisions.
In 2025, the OECD will further update its Model Tax Convention on Income and on Capital, focusing on two main areas. First, it will provide clear guidance on taxing rights for online cross-border work. Second, it will offer alternative provisions to ensure that taxing rights over income from natural resource extraction are allocated to the country where the extraction occurs.
The regulations on remote work are detailed in commentary Article 5, paragraphs 44.1 to 44.21. Previously, the OECD stated that a location used as a fixed place of business in a country could be classified as a permanent establishment (PE).
Article 5, paragraph 44, was last amended in 2017, incorporating perspectives from several countries, including Slovakia and the Czech Republic, on what constitutes a fixed place as a PE. In the latest update, the OECD clarifies that a location used by non-resident taxpayers for non-preparatory work may be considered a PE.
Regarding natural resource extraction activities, the commentary Article 5, paragraphs 47 and 48, presents options for source countries. They can either retain previous provisions that classify offshore extraction activities as relevant activities potentially giving rise to a PE or explicitly define such activities as a PE.
The OECD views this arrangement as crucial because natural resource extraction is often conducted offshore with easily movable equipment. Consequently, such activities were not always considered to create a PE in the source country. Under Article 5 of the OECD Tax Treaty Model, source countries may tax non-resident enterprises only if a PE exists within their jurisdiction.
Therefore, it is understandable that this update to the OECD Tax Treaty Model is regarded as a significant breakthrough in strengthening the taxing rights of developing countries.
