The OECD’s 2025 update to the Model Tax Convention (MTC) on 19 November 2025 introduced key clarifications and optional provisions designed to address evolving global business practices. These changes are particularly relevant for multinational enterprises operating in the Gulf Cooperation Countries (GCC), where cross-border mobility and resource-driven industries play a critical role.
The revised commentary to article 5 provides guidance on the tax implications of cross-border remote work arrangements. The update clarifies when a home office or similar location may constitute a PE, setting out two key criteria:
The update to the model treaty introduces an optional provision under article 5 aimed at reinforcing source-country taxing rights in relation to activities involving the exploration and exploitation of natural resources. This addition is particularly significant for resource-rich jurisdictions, including GCC countries where oil, gas and mineral extraction form a substantial part of the economy.
Under this provision, a PE may be deemed to exist when an enterprise carries out activities connected to the extraction or exploitation of natural resources in the source state, even if such activities do not meet the traditional tests of permanence or fixed place of business. The intent is to ensure that income derived from these operations is appropriately taxed in the jurisdiction where the resources are located, reflecting the principle of economic allegiance.
The commentary clarifies that this provision can be tailored in bilateral treaties to cover not only extraction but also ancillary activities such as drilling, surveying and the installation of equipment. By explicitly recognising these activities as constituting a PE, the OECD seeks to eliminate ambiguity and reduce disputes over taxing rights, which have historically arisen in cross-border resource projects.
For GCC countries, adopting this optional language in future treaty negotiations could strengthen their ability to secure taxing rights over income generated from resource projects within their territories. This is particularly relevant given the region’s strategic focus on energy and natural resource sectors, where foreign enterprises often operate through complex contractual arrangements.
The update to the commentary on article 9 (Associated Enterprises) provides enhanced guidance on the interaction between transfer pricing principles and domestic thin capitalisation rules. The revisions emphasize that interest deductibility should be consistent with the arm’s length principle, ensuring that intragroup financing arrangements reflect commercial reality rather than tax-driven structures. The updated commentary also addresses potential overlaps between articles 7 (Business Profits), 9 and 24 (Non-discrimination), clarifying that treaty provisions should not undermine domestic measures aimed at preventing base erosion through excessive interest deductions. For multinational groups operating in the GCC, this reinforces the need for robust documentation of intercompany financing and alignment with the OECD Transfer Pricing Guidelines.
Significant enhancements have been introduced under article 25, including a new paragraph that clarifies the relationship between the MAP under tax treaties and dispute resolution mechanisms under the WTO General Agreement on Trade in Services (GATS). This aims to prevent conflicts between tax treaty obligations and trade commitments. Additionally, the Commentary now includes expanded guidance on arbitration procedures, offering clearer timelines and processes for resolving disputes where competent authorities cannot reach agreement. References to “Amount B,” a simplified approach for baseline marketing and distribution activities, are also incorporated, signalling the OECD’s commitment to reducing complexity and improving certainty for taxpayers engaged in cross-border transactions.
The commentary to article 26 has been revised to explicitly permit tax authorities to use information obtained through exchange of information requests for cases involving persons other than those initially specified in the request, provided such use complies with domestic law and treaty obligations. This change enhances the effectiveness of information exchange in combating tax evasion and aggressive tax planning. Furthermore, the update includes detailed guidance on confidentiality safeguards and taxpayer rights, ensuring that exchanged information is protected while maintaining transparency. These refinements align with global standards on information sharing and reinforce trust between treaty partners.
The updates to the model tax convention signal the OECD’s intent to modernise treaty interpretation in line with global mobility and digitalisation trends. GCC businesses should review their cross-border structures, remote work policies and resource extraction arrangements to ensure compliance and mitigate PE exposure. Additionally, enhanced MAP and information exchange provisions offer improved mechanisms for resolving disputes and fostering tax certainty.
Shivendra Jha
BDO in United Arab Emirates
Remote Work and Permanent Establishment (PE)
The revised commentary to article 5 provides guidance on the tax implications of cross-border remote work arrangements. The update clarifies when a home office or similar location may constitute a PE, setting out two key criteria:
- Substantial use threshold: A location may be considered a PE if an individual performs duties there for more than 50% of their working time during any 12-month period, indicating continuity beyond incidental use.
- Commercial purpose requirement: The remote work arrangement must serve a business-driven purpose, such as proximity to clients or suppliers. Remote work undertaken solely for personal convenience does not create a PE. The enterprise must derive operational benefit from the arrangement and it should align with the company’s business strategy rather than being an isolated employee preference.
Natural Resource Extraction and PE
The update to the model treaty introduces an optional provision under article 5 aimed at reinforcing source-country taxing rights in relation to activities involving the exploration and exploitation of natural resources. This addition is particularly significant for resource-rich jurisdictions, including GCC countries where oil, gas and mineral extraction form a substantial part of the economy.Under this provision, a PE may be deemed to exist when an enterprise carries out activities connected to the extraction or exploitation of natural resources in the source state, even if such activities do not meet the traditional tests of permanence or fixed place of business. The intent is to ensure that income derived from these operations is appropriately taxed in the jurisdiction where the resources are located, reflecting the principle of economic allegiance.
The commentary clarifies that this provision can be tailored in bilateral treaties to cover not only extraction but also ancillary activities such as drilling, surveying and the installation of equipment. By explicitly recognising these activities as constituting a PE, the OECD seeks to eliminate ambiguity and reduce disputes over taxing rights, which have historically arisen in cross-border resource projects.
For GCC countries, adopting this optional language in future treaty negotiations could strengthen their ability to secure taxing rights over income generated from resource projects within their territories. This is particularly relevant given the region’s strategic focus on energy and natural resource sectors, where foreign enterprises often operate through complex contractual arrangements.
Associated Enterprises and Thin Capitalisation
The update to the commentary on article 9 (Associated Enterprises) provides enhanced guidance on the interaction between transfer pricing principles and domestic thin capitalisation rules. The revisions emphasize that interest deductibility should be consistent with the arm’s length principle, ensuring that intragroup financing arrangements reflect commercial reality rather than tax-driven structures. The updated commentary also addresses potential overlaps between articles 7 (Business Profits), 9 and 24 (Non-discrimination), clarifying that treaty provisions should not undermine domestic measures aimed at preventing base erosion through excessive interest deductions. For multinational groups operating in the GCC, this reinforces the need for robust documentation of intercompany financing and alignment with the OECD Transfer Pricing Guidelines.
Mutual Agreement Procedure (MAP) and Arbitration
Significant enhancements have been introduced under article 25, including a new paragraph that clarifies the relationship between the MAP under tax treaties and dispute resolution mechanisms under the WTO General Agreement on Trade in Services (GATS). This aims to prevent conflicts between tax treaty obligations and trade commitments. Additionally, the Commentary now includes expanded guidance on arbitration procedures, offering clearer timelines and processes for resolving disputes where competent authorities cannot reach agreement. References to “Amount B,” a simplified approach for baseline marketing and distribution activities, are also incorporated, signalling the OECD’s commitment to reducing complexity and improving certainty for taxpayers engaged in cross-border transactions.
Exchange of Information
The commentary to article 26 has been revised to explicitly permit tax authorities to use information obtained through exchange of information requests for cases involving persons other than those initially specified in the request, provided such use complies with domestic law and treaty obligations. This change enhances the effectiveness of information exchange in combating tax evasion and aggressive tax planning. Furthermore, the update includes detailed guidance on confidentiality safeguards and taxpayer rights, ensuring that exchanged information is protected while maintaining transparency. These refinements align with global standards on information sharing and reinforce trust between treaty partners.
Implications for GCC Businesses
The updates to the model tax convention signal the OECD’s intent to modernise treaty interpretation in line with global mobility and digitalisation trends. GCC businesses should review their cross-border structures, remote work policies and resource extraction arrangements to ensure compliance and mitigate PE exposure. Additionally, enhanced MAP and information exchange provisions offer improved mechanisms for resolving disputes and fostering tax certainty.Shivendra Jha
BDO in United Arab Emirates