Executive summary

On 19 November 2025, the Organisation for Economic Co-operation and Development (OECD) released a note with the contents of the OECD 2025 Update to the Model Tax Convention (OECD MTC), including:

• Changes to the Introduction of the OECD MTC to reference the 2025 Update
• Changes to Article 25 (Mutual Agreement Procedure) through the introduction of a new paragraph 6 relating to the General Agreement on Trade in Services
• Substantive changes to the Commentaries on Article 5 (Permanent Establishment), Article 7 (Business Profits), Article 8 (International Shipping and Air Transport), Article 9 (Associated Enterprises), Article 24 (Non-discrimination), Article 25 (Mutual Agreement Procedure), Article 26 (Exchange of Information) and Article 29 (Entitlement to Benefits)
• Changes to the observations and reservations of OECD Member countries in relation to the OECD MTC and its Commentary reflected in the Commentary
• Changes to the Positions of Non-Member Economies in relation to the OECD MTC and its Commentary

The changes in the 2025 Update were approved by the OECD Committee on Fiscal Affairs on 13 October 2025 and the OECD Council on 18 November 2025. These updates will be incorporated into the revised condensed and full editions of the OECD MTC to be published in 2026. Whether the changes in the Commentary will be applied to existing treaties (dynamic approach) or only to new treaties (static approach) will depend on the specific jurisdictions involved.

Detailed discussion

The OECD updates the MTC and its Commentary on a periodic basis. The last update to the OECD MTC was adopted in 2017, reflecting a large number of changes arising from the OECD/G20 Base Erosion and Profit Shifting (BEPS) project.

The OECD note indicates that the main changes to the OECD MTC and its Commentary in the 2025 Update include:

• Changes to Article 25 (Mutual Agreement Procedure) and its Commentary. A new paragraph 6 is added to Article 25 to confirm the role of competent authorities in determining whether a matter falls within the scope of a tax treaty for purposes of the dispute resolution mechanisms provided under the General Agreement on Trade in Services (GATS).
• Substantial additions to the Commentary on Article 5 (Permanent Establishment) are intended to clarify the circumstances in which an individual's home could constitute a "place of business" of the enterprise for which the individual works. These changes are an evolution of existing principles and are intended to ensure the Commentary reflects modern working arrangements, providing additional certainty as to when a fixed place of business permanent establishment will, and will not, be created by an individual working from a home or other relevant place.

Under the existing Commentary, when a home office is used on a continuous basis for carrying on the employer's business and it is clear from the facts and circumstances that the employee was required to work from home, the home office is considered to be at the disposal of the employer, creating a permanent establishment.

The updated Commentary covers both the home office of the employee and other relevant places such as second homes, holiday rentals and other places used by the employee. The first question to be answered is whether the home or other relevant place is used on a continuous basis or incidentally or intermittently. Only if it is used on a continuous basis can it be a fixed place of business. The second question is whether the home or other relevant place is used at least 50% during a 12-month period. If it is used less than 50%, in principle there will be no permanent establishment. If it is used at least 50% during the period, a determination will be made whether there is a commercial reason for the individual's activities in the state of the home office or other relevant place, such as directly engaging with customers, suppliers or associated enterprises there.

• An addition to the Commentary on Article 5 provides an optional alternative provision on activities in connection with the exploration and exploitation of extractible natural resources, together with related commentary. Contracting States may agree to a free-standing alternative provision that provides for a lower permanent establishment threshold, which would be crossed after a nonresident enterprise had operated in a State for more than a bilaterally agreed time period.
• Changes to the Commentary on Article 9 (Associated Enterprises) are partly in response to the questions raised in the context of recent work on the transfer pricing aspects of financial transactions (as reflected in Chapter X of the Transfer Pricing Guidelines). These changes are intended to clarify the application of Article 9 as it relates to domestic laws on deductibility, such as the deductibility of interest and entertainment expenses for example. In this regard, the new Commentary language states that "Article 9 does not deal with the issue of whether expenses are deductible when computing the taxable income of either enterprise" and notes that the conditions for the deductibility of expenses are a matter to be determined under domestic law, subject to the provisions of the tax treaty. Related changes to Commentaries on Article 7 and Article 24 have also been made.
• Changes to the Commentary on Article 25 (Mutual Agreement Procedure) are related to the Pillar One Amount B approach for transfer pricing for certain baseline marketing and distribution transactions. The changes provide specific language relating to tax certainty and the elimination of double taxation in relation to Amount B. These changes are intended to preserve optionality in all dispute resolution mechanisms for jurisdictions that do not adopt Amount B.
• Changes to the Commentary on Article 26 (Information Exchange) address how information received through exchange of information can be used, including indicating that it can be used for tax matters concerning persons other than those for which the information was received and guidance on taxpayers' access to the exchanged information.

Implications

The 2025 Update to the OECD MTC reflects important additions related to the permanent establishment implications of cross-border remote work and the taxation of income from activities connected with the extraction of natural resources, as well as other changes to the OECD MTC and its Commentary. A more detailed EY Global Tax alert on the changes in the Article 5 Commentary with respect to cross-border remote work is forthcoming.

In addition, the 2025 Update reflects changes to the observations and reservations of OECD Member countries, and the positions of Non-Member Economies, in relation to provisions of the OECD MTC and its Commentary.

Companies should assess the implications of these changes. They also should review the changes in the observations, reservations and positions of those jurisdictions that are relevant to their businesses.

Whether the Commentary changes included in the 2025 Update will be applied to both new and existing treaties or only to new treaties will depend on the jurisdictions involved.