Introduction
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 50% of their total working time over a 12-month period from home (or another relevant location), the home office is generally not deemed a fixed place of business of the enterprise.
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 or employee flexibility alone are not sufficient.
Practical tip: Multinationals should monitor remote work across borders. If employees work >50% 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. 7 MTC).
Transfer Pricing and Financial Transactions (Art. 9 MTC Commentary)
Changes to Art. 9 clarify the interaction between the arm’s length principle and national interest deduction rules (e.g. thin capitalization or BEPS Action 4 rules):
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 domestic law.
No automatic correlative adjustment: If one state disallows an interest deduction under its national rules, this does not automatically trigger a corresponding income adjustment in the other state.
Dispute resolution: In case of disagreement (e.g. over debt/equity classification), the OECD recommends using the mutual agreement procedure (MAP) under Art. 25 MTC.
Practical tip: Corporate tax teams should ensure group financing is both arm’s length and locally compliant to avoid mismatches. Where differences arise, MAP can help avoid double taxation.
Mutual Agreement Procedure – GATS and Amount B (Art. 25 MTC/MTC Commentary)
The scope of MAP was expanded in two key areas:
GATS reference (new para. 6): 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.
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.
Practical tip: MAP remains a key instrument to resolve cross-border tax disputes – including those involving service taxation or Pillar One-related topics.
Exchange of Information (Art. 26 MTC Commentary)
The revised Commentary strengthens guidance on how exchanged tax information may be used:
Broader use of information: Tax data exchanged between countries may now also be used for other taxpayers or for broader tax purposes, e.g. statistical analysis or peer reviews, without informing or obtaining consent from the original state.
Taxpayer access rights: Affected taxpayers may access exchanged information, if relevant to their own tax affairs.
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.
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.
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.
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.
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