2025 updates to the OECD Model Tax Convention on Income and on Capital

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2025 updates to the OECD Model Tax Convention on Income and on Capital

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The Organisation for Economic Co-operation and Development (OECD) released the 2025 update to the OECD Model Tax Convention on Income and on Capital, providing new guidance on short-term cross-border remote work, taxation of income from natural resource extraction and intragroup financing.

The Organisation for Economic Co-operation and Development (OECD) released the 2025 update to the OECD Model Tax Convention on Income and on Capital, providing new guidance on short-term cross-border remote work, taxation of income from natural resource extraction and intragroup financing.

The changes, which aim to enhance tax certainty and support fair and efficient cross-border business taxation among others, include:

  • Cross-border remote work: New detailed guidance on when an individual’s home or other relevant place in another State may constitute a fixed place of business:

    o    Introduces a 50% working time threshold and requirement of a commercial reason for presence in the other State.

    o    Clarifies that purely cost saving arrangements or intermittent/incidental work do not create a PE, and that the place must be used on a continuous basis.

  • Natural resources: A new alternative tax treaty provision to ensure that income from activities connected with natural resources extraction is taxed where it occurs, reinforcing source-country rights and supporting resource-endowed developing economies

    o    Allows treaty partners to agree a shorter time threshold (e.g., 30, 90 or 183 days) for deeming a PE for such activities, instead of the standard 6–12 month thresholds.

  • For intra group financing, the OECD clarified: first determine whether the transaction is a loan or an equity contribution, and only then apply the arm’s length principle. Corresponding adjustments between countries are possible only if the other State agrees that the primary adjustment is justified and consistent with the arm’s length principle.

  • Other improvements: Additional refinements to enhance consistency in treaty interpretation, strengthen tax certainty, and align Commentaries with modern business practices and BEPS recommendations.

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