The OECD has issued updated commentary clarifying when cross‑border working may create a PE. This is an important development given the increase in non-standard working arrangements, such as the use of employers of record and overseas contractors, and the prevalence of working from an overseas “home”.
As a summary, under this new guidance, the creation of a “fixed place of business” PE requires two criteria to be met:
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1. A place of business must be fixed
A place of business is “fixed” only where there is a sufficient degree of permanence and regularity of use.
The commentary introduces a practical benchmark: if an individual works from the overseas home or other relevant place for less than 50% of total working time in any twelve‑month period, that place will generally not be a place of business of the enterprise.
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2. There must be a “commercial reason”
For a place of business to create a PE, there must be a commercial reason for the individual’s presence and activities in that jurisdiction.
A commercial reason exists where being physically located there facilitates the enterprise’s business, such as direct engagement with customers or suppliers, access to local markets or resources, or work that would otherwise require the enterprise to use other premises in that jurisdiction.
By contrast, presence driven solely by personal preference, HR retention or recruitment aims, or generic cost‑saving without a business need to be in that jurisdiction would not be treated as a commercial reason.
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In practice, this guidance may give licence for businesses to permit more ad hoc overseas working. However, risks remain, especially for senior employees because the “dependent agent” PE test must still be considered separately.
Nonetheless, this commentary provides clearer guardrails for assessing PE exposure and documenting decisions. In light of this, it is more important than ever for businesses to:
- Track the days employees spend working outside of their “home” jurisdictions.
- Record the purpose of overseas working.
- Have a global mobility policy so employees and internal stakeholders understand when and where they might be permitted to work from abroad, and the potential consequences of overstepping those thresholds.
*Lewis Silkin
