Over the past decade, the way we work has undergone a fundamental transformation: employees are now running core business operations from their kitchen tables, in jurisdictions that employers barely thought about from a tax perspective. This shift has significantly altered the international tax risk landscape.
As a result, companies with cross-border remote working arrangements must carefully assess whether such practices could give rise to permanent establishment (PE) and, consequently, a taxable presence in another State. In particular, two types of PE may become relevant: (i) the first is a fixed place of business PE under article 5(1) of the OECD Model Tax Convention (OECD MTC), (ii) the second is a dependent agent PE under article 5(5).
What once represented a straightforward tax analysis now poses an interpretative challenge for employers, regarding article 5 of the OECD MTC, a framework that was developed for a far more traditional working environment and not designed with today’s working reality in mind.
A location such as a home-office would constitute a place of business PE if it was “at the disposal” of the employer, which, according to previous OECD interpretation, only happened if “the enterprise has required the individual to use that location”. As to a dependent agent PE, the concept addressed individuals acting on behalf of the non-resident company, accordingly, there would only be a PE if an employee habitually concludes (or plays the principal role in the conclusion of) contracts in the name of the company.
Under this traditional framework most situation would fall out of the scope of the PE concept as, many home-offices would not be considered at the disposal of the non-resident company to become a fixed place of business PE; and most remote workers would not be regarded as acting on behalf of the enterprise in a manner sufficient to constitute a dependent agent PE.
In December 2025, the OECD has updated its guidance and interpretation on the fixed place of business PE, namely on the requirements for a remote worker to generate a PE, and, consequently, a taxable presence of the non-resident company, introducing new criteria that need careful consideration.
The 2025 update states that a home or any remote work location may constitute a place of business of a company, and a PE may arise, where it is used continuously over an extended period to carry on the business activities of such company. Accordingly, the new guidance introduces a two-tiered test, under which a fixed place of business PE will be deemed to exist only if both of the following conditions are met:
Quantitative threshold: if an employee spends more than 50% of their working time remotely (tested over a 12-month period).
Qualitative assessment: there is a “commercial reason” for the individual to work remotely on the jurisdiction where the home office is located.
Commercial reasons include, for instance, performance of services to customers located in that State, meetings with them, or access to people or resources in that country which the non-resident needs to carry out its business. Critically, a commercial reason will not exist merely because a business enables remote work to obtain that employee’s services or to reduce business costs.
A “not so remote” risk
The new remote work fixed place of business PE framework upends traditional assumptions. Companies that have expanded internationally through full remote arrangements, or hire allowing full remote work in different jurisdictions should review their tax positions – as the workers are in full remote, and there may be commercial reasons to have remote workers in such jurisdictions. Remote workers who would not fall within the dependent agent threshold can now trigger a fixed place of business PE under the revised guidance, even when they exercise no substantial authority.
There are risks, but also, several ways of mitigating them:
On the one hand, companies should keep close monitoring of the location of the home-offices, namely, safeguarding against inadvertently crossing the 50% threshold. Although such a threshold sounds clear on paper, proving compliance proof may raise considerable challenges.
Moreover, the “commercial reason” test introduces subjectivity into an area that demands clarity. This may be addressed, e.g., through clarifying in the relevant agreements that remote work is allowed solely to retain the workers, or that the company does not have any intention to conduct business within that jurisdiction. Such clarifications could offer relatively simple ways to reduce tax risks, in any case, it is not clear if tax authorities would accept such formalistic solutions.
Portuguese Tax Authorities position
Regarding home-office PE specifically, Portugal has not yet adopted a clear position, nor has it issued comprehensive formal guidance on when a home office crosses the line and gives rise to a permanent establishment.
The Portuguese Tax Authorities (PTA) has been approaching Portuguese home-office cases based on article 15 of the OCDE MTC, analysing Portugal’s competence to tax employment income derived from a foreign source, rather than consider the PE implications (article 5 of the OECD MTC) from the employers perspective. The OECD’s 2025 update is significant in the Portuguese context as the revised guidance might shape how the PTA interprets PE provisions in future assessments.
The updates to the OECD Model Convention concerning home-office PE will carry significant weight in the approach taken by the PTA and courts. In an era where the office has become increasingly fluid and workers demand ever-greater flexibility from their employers must pay particular attention to the tax implications these arrangements may generate.
The message is clear: in the age of remote work, a kitchen table can create the same tax obligations as an office space. These developments require fresh analysis and planning by companies operating cross-border remote work arrangements.
Inês Rito, Associate at Pérez-Llorca
Miguel Teles, Associate at Pérez-Llorca
