In November 2025, the OECD published a comprehensive update to the Commentary on the Model Tax Convention on the avoidance of double taxation. Among other things, the 2025 changes clarify the assessment of permanent establishment risks associated with cross-border remote working, provide new guidance on the combined application of transfer pricing and interest deduction limitations, expand taxation options related to the extraction of natural resources, and strengthen the role of the mutual agreement procedure (MAP) in resolving international tax disputes.
Most of the 2025 amendments to the Commentary on the OECD Model Tax Convention do not affect the wording of the Model Tax Convention itself but clarify its interpretation. However, the changes may significantly influence how tax authorities and courts interpret tax treaties currently in force. In a separate information notice, the Hungarian tax authority (NAV) also highlighted that the updated Commentary may have guiding significance when interpreting Hungary’s tax treaties.
Based on the update, businesses should continue examining international taxation issues at three levels:
- what the specific bilateral tax treaty contains;
- how the OECD Commentary interprets it;
- whether an amendment to the Commentary introduces a new interpretation or merely clarifies previous practice.
The most important changes concern the following areas:
- cross-border remote working and the creation of a permanent establishment;
- profit adjustments between related companies and interest deduction limitations;
- taxation of natural resources;
- mutual agreement procedure (MAP) and international tax disputes.
Cross-border remote working: renewed focus on permanent establishment risk
One of the most significant tax challenges of the post-Covid period has been the spread of cross-border remote working. More and more employees work on a long-term basis from a country other than the one in which their employer operates. Therefore, in connection with Article 5, the updated Commentary on the OECD Model Tax Convention introduced new, detailed guidance for assessing the creation of a permanent establishment.
One of the amendment’s most important practical messages is that the OECD provides a more detailed analytical framework than before for assessing home-office and remote-working arrangements.
Under the new approach, the first point to examine is whether, during any 12-month period, the employee performs at least 50% of their working time from the same location abroad. If this condition is met, it must then be examined whether the presence in the other state is based on a business or commercial reason or merely on the employee’s personal decision.
The Commentary thus conveys two important messages:
- short-term remote working for lifestyle reasons entails a lower risk of creating a permanent establishment;
- in cases of long-term work abroad, examining the existence of a permanent establishment remains a key issue, even if the company has no office of its own in the country concerned.
However, these are only the main lines of interpretation. When classifying a permanent establishment, the specific economic substance and individual circumstances of remote working must be considered in every case, including the legal basis for using the location, the existence or absence of a business reason, and the remote worker’s role or status within the employer’s organisation.
What does this mean for businesses?
The amendment may be particularly important for companies that:
- operate workation programmes;
- employ executives or experts working from abroad;
- perform regional sales or business development tasks remotely;
- apply flexible international mobility policies.
Companies’ HR, tax and legal departments should consider jointly reviewing their policies on remote working abroad and the documentation of permanent establishment risks, particularly for employees in key positions.
Related companies, transfer pricing and interest deduction limitations
The Commentary on Article 9 has also undergone significant revision. The amendment incorporates changes made in the meantime to the OECD Transfer Pricing Guidelines, including Chapter X on financial transactions.
In recent years, many countries have faced the question of how transfer pricing rules interact with interest deduction limitation provisions under national law. The updated Commentary confirms that the two sets of rules serve different purposes and may therefore, as a general rule, be applied in parallel.
According to the Commentary, compliance with transfer pricing rules does not in itself mean that interest expense will be fully deductible. Interest deductibility must still be assessed under national rules.
The update also clarifies that, before examining whether interest and other lending terms comply with market conditions, it must be analysed whether the transaction concerned should be treated as a loan at all. In this case too, the actual economic substance “takes precedence”. This approach may, in certain cases, call into question whether a transaction qualifies as a loan rather than an equity contribution.
Why is this important for CFOs and treasury centres?
When designing intragroup financing structures, demonstrating compliance with the arm’s length price is no longer sufficient on its own. It is also necessary to examine the extent to which interest expense is deductible under local rules and determine the transaction’s actual economic substance.
In Hungary, this is particularly relevant because of the application of the ATAD-based EBITDA limitation and the nominal interest deductibility limit.
New option for taxing natural resources
A further new feature of the 2025 update is the introduction of a new optional treaty provision governing the taxation of activities connected with the exploration and extraction of natural resources, such as oil, natural gas and minerals.
The new rule may apply to:
- offshore extraction activities connected with the seabed, subsoil and related natural resources;
- in certain cases, associated onshore activities.
The provision broadens withholding tax options by allowing resource-rich states to obtain wider taxing rights and establish a taxable presence more quickly in relation to extraction projects.
As the rule is optional, its actual significance will depend on whether individual countries incorporate it into their treaties during future tax treaty negotiations.
International tax disputes: the role of MAP is strengthened
The Commentary on Article 25 concerning the mutual agreement procedure has also been significantly expanded. One important change further strengthens the role of MAP (Mutual Agreement Procedure) in resolving international tax disputes.
Under the amendment, taxpayers may initiate a MAP as soon as the risk of taxation contrary to the treaty can be substantiated. They do not need to wait until double taxation actually occurs.
This may be particularly important in:
- transfer pricing disputes;
- questions concerning the assessment of permanent establishments;
- tax authority audits involving several countries;
- situations where there is a risk of double taxation.
The Commentary also confirms that MAP remains the primary forum for resolving tax disputes, as opposed to the GATS (General Agreement on Trade in Services) mechanisms operating within the WTO framework.
What steps should be taken, and by whom?
Although the amendments to the Commentary on the OECD Model Tax Convention do not automatically change the wording of bilateral tax treaties currently in force, by clarifying the interpretative framework they may directly affect businesses’ tax risks and compliance obligations. The following companies in particular should review their current practices:
- companies using international remote working;
- financing centres of multinational groups;
- companies exploiting natural resources;
- companies involved in international disputes related to double taxation.
The clear message of the OECD Model Tax Convention Commentary’s 2025 update is that international taxation places increasing emphasis on examining economic substance, proactively managing risks and resolving disputes at an early stage.
The 2025 amendments to the Commentary on the OECD Model Tax Convention introduce new considerations concerning permanent establishment risks, transfer pricing, group financing and international tax disputes. Correctly interpreting and applying the changes in practice is essential for reducing risks and ensuring compliance. The experts of WTS Klient Hungary provide support in the coordinated interpretation of international and Hungarian tax rules, the application of tax treaties, and the identification and management of tax risks affecting businesses. Learn more about our international tax planning and tax consulting services and ask our experts for assistance with questions affecting your business.
This article is for general information purposes only and should not be considered as advice.
