BRUSSELS | 24 NOVEMBER 2025
2025 Update to the OECD Model Tax Convention
Last week, the OECD published the 2025 Update to the OECD Model Tax Convention, introducing changes to reflect modern cross-border working arrangements and to clarify the taxation of income from the extraction of natural resources. The update will be incorporated into the revised condensed and full editions of the Model, to be released in 2026.
Cross-Border Working Arrangements
The update clarifies when short-term cross-border remote work, including work performed from a home office in another jurisdiction, constitutes a fixed place of business permanent establishment for treaty purposes. The revised Commentary on Article 5 provides a structured framework for assessing permanence, the proportion of time spent working in the other State, and whether the individual’s presence there serves a commercial purpose for the enterprise. It confirms that most employee-driven remote-working arrangements will not create a taxable presence unless the facts indicate that the enterprise benefits from or requires activities to be performed in that jurisdiction.
Transfer Pricing Issues Arising from Financial Transactions & Interest Deductibility
The update amends the Commentary on Article 9 to address transfer pricing issues arising from financial transactions and to clarify the interaction between Article 9 and domestic rules on interest deductibility, including those developed under BEPS Action 4. Related adjustments are made to the Commentaries on Articles 7 and 24. Further changes to Article 25 highlight language relevant to Amount B, ensuring that non-adopting jurisdictions retain full optionality across dispute-resolution mechanisms. The Commentary on Article 26 is expanded to confirm that exchanged information may be used for tax matters involving persons other than those initially covered, and to reflect agreed guidance on taxpayer access and non-taxpayer-specific information derived from exchanged data.
Taxation of Exploitation of Natural Resources
A new optional provision is introduced to govern the taxation of activities connected with the exploration and exploitation of extractible natural resources. This provision establishes a lower permanent establishment threshold—triggered once a non-resident enterprise carries out relevant activities in a State for more than a bilaterally agreed period—and includes source-country taxing rights over gains associated with natural-resource assets. The accompanying Commentary offers detailed guidance, reflecting common treaty practice and the policy interest of resource-endowed countries.
The 2025 Update also includes a broad set of additions and revisions to OECD Member and non-Member reservations and observations, reflecting diverse policy positions across provisions dealing with residence, fiscal transparency, royalties, capital gains, employment income and administrative cooperation.
A webinar will be held by the OECD on 10 December from 16:00 – 17:00 CET, in which the changes to the Model Tax Convention will be explained and discussed by Manal Corwin, Director of the OECD Centre for Tax Policy and Administration, and other members of the Tax Treaty Team at the OECD.
Evaluation of the EU Directive on Administrative Cooperation in Taxation (DAC)
The European Commission has published the 2018-2023 evaluation on the Directive on Administrative Cooperation (DAC), with the report setting out that the Directive has significantly strengthened Member States’ ability to address tax fraud, evasion and avoidance, particularly through the expansion of automatic exchange of information.
The report finds that DAC mechanisms are effective and increasingly used, with timely and generally high-quality data under DAC1 and DAC2 supporting both risk assessment and voluntary compliance. However, gaps remain for DAC3, DAC4 and DAC6, where incomplete information, such as missing taxpayer identification numbers and insufficient detail in rulings or free-text disclosures, continues to limit usability and matching rates. Despite these issues, the DAC delivers substantial financial benefits, estimated at EUR 6.8 billion per year, compared to annual costs of around EUR 646 million, most of which fall on reporting entities under DAC2.
The framework is found to be broadly coherent with EU anti-money-laundering and VAT administrative cooperation rules and aligned with international standards, providing clear EU added value by harmonising reporting requirements, minimising bilateral fragmentation and enabling exchanges through common secure IT systems. The DAC remains highly relevant as tax administrations confront new challenges linked to digital platforms, mobile taxpayers and crypto-assets, with DAC7 and DAC8 expected to play a growing role as new data becomes available.
Implementation lessons highlight that repeated amendments have made the legal framework increasingly complex, particularly with respect to DAC6, where broadly drafted hallmarks and divergent national interpretations drive legal uncertainty, inconsistent application and increased administrative burden. Penalties for non-compliance differ widely between Member States, raising concerns about deterrence and the level playing field. While data quality has improved, especially for DAC1 and DAC2, persistent mismatches still require resource-intensive manual corrections, and use of exchanged data varies, with limited transparency on outcomes.
Looking ahead, the Commission plans to simplify and consolidate the DAC, assess the need to adjust DAC6 hallmarks, and provide more systematic EU-level guidance to improve consistency. It will also engage with Member States to strengthen penalties regimes, explore an EU-wide taxpayer identification number to enhance matching, and encourage more systematic integration of DAC data into domestic tax processes, including pre-filled returns and risk-analysis systems. The report also notes the potential benefits of a more centralised EU IT architecture to reduce costs, increase agility and improve data quality.
OECD Publications: Key International Tax Developments