New policy decree on the application of international tax law

A new policy decree on the application of international tax law in relation to business profits has recently been published. The 25-page document addresses the Dutch application of provisions from tax treaties and Dutch tax legislation. One of the topics covered in the decree concerns remote working and permanent establishments.

Employees who work from home for a foreign employer may unintentionally create a taxable presence, or permanent establishment, for that employer in the country where they reside. The policy decree discusses this issue in more detail, partly in response to the amendment of the OECD Model Tax Convention of 19 November 2025.

The OECD Model Tax Convention and the accompanying commentary clarify when a home office may constitute a permanent establishment of a foreign employer. As a general rule:

• If an employee works from home for less than 50% of their total working time over a twelve-month period, the home will generally not be regarded as a permanent establishment.
• If an employee works from home for more than 50% of their time, it must be assessed on a case-by-case basis whether a permanent establishment exists. In this assessment, it is particularly relevant whether there are business reasons for performing the work from that state.

The Netherlands follows this approach. It has been indicated that the amendment to the OECD Model Tax Convention should be regarded as a clarification of Article 5 of the OECD Model Tax Convention and all previous commentaries. This interpretation is therefore relevant to all older tax treaties in which the business profits article is based on the OECD Model Tax Convention.

Please note: this clarification relates solely to the question of whether a home office constitutes a permanent establishment of the employer, with potential consequences for that employer’s foreign corporate income tax liability. Separately, the usual test under the employment income article continues to apply to the taxation of the employment income of the employee working from home, in order to determine how taxing rights are allocated between the state of residence and the state of work. Both assessments — the permanent establishment assessment and the allocation of taxing rights over salary — must therefore be made separately.