Germany’s Response to the New OECD Model Commentary 2025 and the OECD Work Initiative on Flexible Working

Driven not least by the megatrends of globalization and internationalization, as well as by digitalization, companies are facing continuous transformation pressure. In this context, the demand for flexible working environments is gaining increasing importance. The so-called war for talent, rising employee expectations, and evolving business strategies require a reassessment of traditionally rigid tax structures. Both the OECD and the German Federal Ministry of Finance (Bundesministerium der Finanzen, “BMF”) have updated their guidance to provide companies with greater legal certainty when addressing cross-border remote work arrangements.

In April 2025, OECD member states agreed to further examine the topic of global mobility. The chosen evidence-based approach included a call for public comment, on the basis of which a report was prepared and further discussed (Public consultation meeting: Global mobility of individuals). Given the complexity of the subject, no concrete outcomes have been achieved to date. However, key focus areas have been identified that are to be further pursued in future consultations, in particular:

• clear, globally applicable criteria for remote work permanent establishments,

• harmonization of tax consequences for mobile workers,

• development of guiding principles for new working models (e.g., “digital nomads”, “remote hires”),

• avoidance of double taxation, and

• reduction of administrative burdens for short-term cross-border assignments.

However, an initial OECD measure has already been implemented with the revised commentary on Article 5 of the OECD Model Tax Convention (update of November 19, 2025). In particular, this includes clarifications regarding the conditions under which home office activities may constitute a permanent establishment. The OECD commentary primarily addresses cases of cross-border remote work and provides, in essence, the following key clarifications:

• Occasional or temporary work from home (less than 50% of working hours) generally does not constitute a permanent establishment.

• If home office work accounts for more than 50% of working hours within a twelve-month period, a case-by-case assessment is required.

• For a permanent establishment to exist, there must be a sufficient functional connection between the person’s presence, the location of the home office, and the company’s business activities in that country.

On February 13, 2026, the BMF published a draft circular on the concept of a permanent establishment, which was subject to public consultation until March 13, 2026. With regard to home office permanent establishments, the following aspects are particularly noteworthy:

• The “right of disposal” over the premises remains the key differentiating criterion; exceptions apply in particular to place-of-management and dependent agent permanent establishments.

• The draft explicitly refers to the updated OECD commentary on home office arrangements.

The measures outlined above are to be welcomed, as they support both taxpayers and advisors by providing more precise guidance for the legally sound assessment of cross-border situations. At the same time, they also highlight existing structuring opportunities. However, as the current rules only address a limited aspect of mobile working, there is still a considerable way to go before tax law fully reflects the practical realities of modern working models.