On 19 November 2025, the OECD published an update to the OECD Model Tax Convention (MTC) and its accompanying Commentary. This is the first revision since 2017 and addresses developments such as the rise of cross-border remote work and results from international tax reform initiatives (BEPS, Pillar One). Since Germany’s tax treaties are largely based on the OECD MTC, these changes are highly relevant for internationally active companies with operations in Germany.
Below is a structured summary of the main changes and their practical implications.
Permanent Establishment via Home Office (Art. 5 MTC Commentary)
The most substantial changes concern the question of when a foreign home office constitutes a permanent establishment (PE) for the employer. The revised Commentary on Art. 5 includes 21 new paragraphs and five practical examples. Key clarifications include:
- 50% threshold: If an employee works less than XNUMX%of their total working time over a XNUMX-month period from home (or another relevant location) the home office is generally not deemed a fixed place of business of the enterprise. Facility of the company. Only from at least 50% If working from home will be permitted within 12 months, a more detailed examination of the circumstances is necessary.
- Business purpose: If the 50% threshold is exceeded, a PE is still only triggered if the home office is used for business reasons. The employee’s physical presence in the host country must provide a clear commercial advantage (e.g. regular client or supplier contact). Cost-saving measures Cost-saving measures Cost-saving measures or employee flexibility alone are not sufficient.
Practical tip: Multinationals should monitor remote work across borders. If employees work >XNUMX% from abroad, it must be evaluated whether this is driven by business needs. Otherwise, there may be PE risks (e.g. for profit attribution under Art. XNUMX MTC). Remote Work Now systematically check whether an employee spends more than 50% of their time abroad and whether this is for business reasons. If necessary, tax risks of permanent establishments to manage (e.g. profit allocation according to Article 7 OECD Model Tax Convention).
Transfer Pricing and Financial Transactions (Art. 9 MTC Commentary)
Changes to Art. 9 clarify the interaction between the <strong>arm’s length principle</strong> and <strong>national interest deduction rules</strong> (e.g. thin capitalization or BEPS Action 4 rules): <br>Practical tip: Corporate tax teams should ensure group financing is both <strong>arm’s length</strong> and <strong>locally compliant</strong> to avoid mismatches. Where differences arise, MAP can help avoid double taxation.</br><br>(Practical tip: Corporate tax teams should ensure group financing is both <strong>arm’s length</strong> and <strong>locally compliant</strong> to avoid mismatches. Where differences arise, MAP can help avoid double taxation.)<br>
- TP vs. deductibility: The Commentary emphasizes that Art. 9 does not determine whether expenses (especially interest) are deductible for tax purposes. That remains subject to <strong>domestic law.</strong> not regulates, ob and under what conditions expenses – especially interest – are tax-deductible. This question remains with the respective individual. national tax law In practice, therefore, the first step is to check whether an intra-group loan is recognized as such for tax purposes; only then does national law decide on the deductibility of the interest.
- No automatic correlative adjustment: If one state disallows an interest deduction under its national rules, this <strong>does not automatically</strong> trigger a corresponding income adjustment in the other state. not automatically a corresponding increase in profits in the other state. In other words, a unilateral addition of interest does not per se lead to a mandatory Counter-adjustment at the affiliated company abroad.
- Dispute resolution: In case of disagreement (e.g. over debt/equity classification), the OECD recommends using the <strong>mutual agreement procedure (MAP)</strong> under Art. 25 MTC.
Mutual Agreement Procedure – GATS and Amount B (Art. 25 MTC/MTC Commentary)
The scope of MAP was expanded in two key areas: Mutual agreement and arbitration procedures <br>(Practical tip: MAP remains a key instrument to resolve cross-border tax disputes – including those involving service taxation or Pillar One-related topics.)</br>
- GATS reference (new para. XNUMX): Competent authorities must examine whether a tax dispute falls under a tax treaty, even if the dispute also relates to the WTO’s General Agreement on Trade in Services (GATS). This ensures treaty-based resolution mechanisms apply uniformly across all DBAs. GATSThis ensures that tax non-discrimination issues in the GATS context are resolved via double taxation agreement (DTA) procedures and that all agreements are treated equally – regardless of whether they existed before the GATS came into force. Disputes regarding the applicability of a DTA despite the GATS must therefore be resolved within the framework of the MAP. not about the WTO dispute settlement procedure.
- Amount B (Pillar One): New language clarifies that countries not applying the Amount B provisions (standardised returns for routine distribution functions) still retain access to MAP and arbitration to prevent double taxation. Amount B-not adopting regulations (standard return for marketing and sales functions), nevertheless Scope for negotiation in dispute resolution proceedings In particular, such states should also be able to find solutions in MAP or arbitration proceedings to avoid international double taxation, even if they do not apply Amount B.
Exchange of Information (Art. 26 MTC Commentary)
The revised Commentary strengthens guidance on how exchanged tax information may be used: Transparency and user rights expanded. Key points:
- Broader use of information: Tax data exchanged between countries may now also be used for <strong>other taxpayers</strong> or for <strong>broader tax purposes,</strong> e.g. statistical analysis or peer reviews, without informing or obtaining consent from the original state. other taxpayers or be used for broader tax purposes than those for which they were originally collected. For example, a country could use the data obtained for... other taxation cases, statistical analyses or multilateral peer reviews to use without having to ask the supplying contracting country for permission or inform it.
- Taxpayer access rights: Affected taxpayers may access exchanged information, if relevant to their own tax affairs. Insight into exchanged information They will receive this information, provided it is relevant to their own tax affairs. In practical terms, this means that, under certain conditions, individuals may be informed which data concerning them has been exchanged between authorities.
- Confidentiality maintained: Non-personal or anonymized information remains protected by tax secrecy. Disclosure to third parties is only allowed if no identification is possible and both states confirm that no harm to tax administration will occur. non-personal Aggregated information (e.g., statistics, anonymized reports) is subject to tax secrecy. Disclosure of such data to third parties is only permitted if No conclusions can be drawn about individual taxpayers. are possible and Both contracting states confirm in writing that through the disclosure no adverse consequences to be expected for their financial administrations.
Practical tip: Businesses should ensure their international tax positions are consistently documented,as shared data may be re-used. Access rights offer opportunities to detect and correct misunderstandings early. <br> <br> Note regarding Germany:<br><br> The revised OECD Model Commentary does not automatically have direct effect in Germany. As a rule, a need for action only arises once the amended provisions have been incorporated into existing double taxation agreements (DTAs). This means that Germany would have to renegotiate bilateral treaties accordingly. Nevertheless, it should be noted that the tax authorities have so far followed a dynamic interpretation, i.e. they also rely on later versions of the Commentary when interpreting existing DTAs — a practice that has so far been rejected by the Federal Fiscal Court (BFH), which applies a static interpretation. With the BMF letter dated XNUMX December XNUMX, there is now a partial departure from the previous administrative position. In the future, the version of the OECD Model Commentary in force at the time the approval act was adopted shall primarily be decisive for interpretation purposes; later versions shall only be taken into account if they are of a merely clarifying nature.” indirectly This information can be used for their tax returns. At the same time, it is positive that taxpayers may gain access to the information exchanged about them – this allows them to resolve discrepancies. react early to be able to.
Note regarding Germany: The revised OECD Model Commentary does not automatically have direct effect in Germany. As a rule, a need for action only arises once the amended provisions have been incorporated into existing double taxation agreements (DTAs). This means that Germany would have to renegotiate bilateral treaties accordingly. <br><br>Nevertheless, it should be noted that the tax authorities have so far followed a dynamic interpretation, i.e. they also rely on later versions of the Commentary when interpreting existing DTAs — a practice that has so far been rejected by the Federal Fiscal Court (BFH), which applies a static interpretation.
With the BMF letter dated 24 December 2025, there is now a partial departure from the previous administrative position. In the future, the version of the OECD Model Commentary in force at the time the approval act was adopted shall primarily be decisive for interpretation purposes; later versions shall only be taken into account if they are of a merely clarifying nature.”
Conclusion
The 2025 update to the OECD Model Commentary introduces significant clarifications – particularly regarding remote work, intercompany financing, dispute resolution, and exchange of tax information. While existing treaties remain formally unchanged, these updates will likely influence interpretation and administrative practice in Germany and elsewhere. CFOs and heads of tax should assess the potential impact on remote work policies, financing structures, and compliance with cross-border data flows, and adjust internal processes as needed. Home office locations and Financing transfer prices The changes create greater legal certainty and provide guidelines for practice. They also strengthen cross-border cooperation. Dispute resolution mechanisms (mutual agreement procedure) and the Exchange of information between the authorities. Although the changes do not directly alter existing double taxation agreements, they are expected to have an impact on the interpretation influencing tax authorities and courts. Tax directors and CFOs should therefore be aware of the new OECD pronouncements and examine whether need for action exists – for example, in international cases Remote work policies, internal group Financing structures or in dealing with tax authority inquiries in an international context.
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