This lesson explores the 2025 update to the OECD Model Tax Convention, approved in November 2025, which represents the first comprehensive revision since 2017 and significantly affects modern working arrangements, transfer pricing, and dispute resolution.

• Home Office and Remote Work (Article 5): The updated commentary provides extensive guidance on when a home office or “other relevant place” (including holiday rentals or second homes) may qualify as a Permanent Establishment (PE). A 50% working time threshold is introduced: a location will not be considered a PE if an individual works from home or another relevant place in a jurisdiction for less than 50% of their total working time over a twelve-month period. When this threshold is met, additional facts and circumstances are considered, including whether there is a commercial reason for the enterprise to have the individual performing activities in the jurisdiction. A PE is more likely to arise where remote work is driven by business needs, rather than personal preference or cost-savings.

• Transfer Pricing and Interest Deductibility (Article 9): The updated commentary clarifies the interaction between Article 9 and domestic rules on thin capitalization and interest limitation. It reaffirms the central role of the OECD Transfer Pricing Guidelines (including the new Chapter X on financial transactions) as the internationally agreed interpretation of the arm’s length principle. Crucially, Article 9 does not prevent the application of domestic thin capitalization or interest limitation rules, provided these effectively align taxable profits with an arm’s length outcome. Once profits have been allocated in accordance with the arm’s length principle, whether and how expenses are deductible is a matter for domestic law, subject to non-discrimination protections.

• Dispute Resolution and Information Exchange (Articles 25 and 26): The 2025 update enhances Mutual Agreement Procedure (MAP) and arbitration, including signposting to Amount B guidance. A new paragraph 6 to Article 25 clarifies the interaction of tax treaty provisions with the WTO’s General Agreement on Trade in Services (GATS) dispute resolution framework. Expanded guidance on exchange of information clarifies that information received can be used for tax matters concerning persons other than those initially specified, without needing to inform or seek authorization from the sending jurisdiction.