Introduction
The 2025 Update to the OECD Model Tax Convention, representing the first comprehensive revision of the OECD Model Tax Convention since 2017, serves as the principal international reference for the negotiation, application, and interpretation of bilateral double taxation avoidance agreements (DTAAs) and aims to harmonize tax treaty practice, reduce double taxation, and facilitate cross-border trade and investment. The 2025 update is reflection of evolving state of businesses, work culture and economic realities, the OECD introduced select and significant changes in commentaries and articles likely to impact the country’s approach towards DTAA negotiations, interpret permanent establishment (PE) concepts, and resolve treaty disputes.
OECD (2025), The 2025 Update to the OECD Model Tax Convention, OECD Publishing, Paris,
1. Permanent Establishment and Remote Work
In the context of remote and cross-border work arrangements, the commentary on Article 5 (Permanent Establishment) has been revised to cater, when an employee’s home office constitutes “place of business” of an enterprise for tax purposes, in response of proliferation of remote work post pandemic, signaling shift towards more nuanced PE definitions that account for modern patterns of work and mobility.
Expansion of commentary on Article 5 with respect to inclusion of “optional alternative provision” related to addressing exploration and exploitation of extractible natural resources. Non-resident enterprise operates in a State for more than a bilaterally agreed duration, lower permanent establishment threshold triggered, strengthening the source country taxing rights.
Supra Note 1
2. Transfer Pricing and Associated Enterprises
The commentary on Article 9 (Associated Enterprise) amendments reflect the development in transfer pricing principles related to corporate interest deductibility and financial transactions aligning recent OECD Transfer Pricing Guidelines to adjust under Article 9 (Domestic interest limitation rules and profit allocation), interacts with deductibility of expenses, which remains a matter of domestic law. This helps to a key area of double taxation risk for multinational enterprises, clarify the boundary between transfer pricing adjustments and local tax deductibility regimes.
3. Mutual Agreement Procedure and Dispute Resolution Enhancements
Introduction of new paragraph 6 in Article 25 (Mutual Agreement Procedure) expanding the procedural clarity and scope of dispute resolution, especially clarifying when issues fall within a tax treaty’s scope for dispute purposes while interactions between the Convention and the General Agreement on Trade in Services (GATS). The commentary also strengthens the role of Competent Authority emphasizing on proactive, cooperative and transparent engagement using MAP measures to resolve disputes with clearer expectation of procedural timelines, information exchange, and interactions with domestic remedies.
4. Exchange of Information and Tax Certainty
Revision of Article 26 (Exchange of Information) indicating information exchanged for a particular taxpayer can be used in tax matters concerning other taxpayers, enhances tax certainty by clarifying the permissible use and limits of exchanged data, addressing issues of confidentiality, and reinforcing expectations for tax administrations in information exchange
Supra Note 1
DTAA Negotiations and Impact of 2025 OECD Update
- Incorporation of PE, in context of cross-border and remote labour markets forced negotiators to reassess provisions in bilateral treaties, jurisdiction that adopt dynamic application of OECD commentary may include similar language permitting interpretation applicable to existing DTAA text, raises strategic questions during negotiations about flexibility versus certainty on PE profiling.
- Updated transfer pricing guidelines within treaty text rely on the commentary, renegotiation required in bilateral treaties with comprehensive transfer pricing to reflect new OECD norms, aligning closely with current international transfer pricing framework.
- Negotiators may prioritize and insist upon clearer MAP triggers, procedural safeguards, particularly when unilateral interpretation of treaty escalate to non-tax disputes references to GATS to prevent trade disputes aligning domestic appeal processes with treaty level dispute resolution mechanisms.
- Negotiators may push standardization of exchange of information in treaty clauses more explicit language on taxpayer access rights and permissible uses of exchanged data in DTAA text or through reference to OECD guidance.
The 2025 OECD Update on Model Tax Convention denotes the changing realities in international trade and tax treaty norms, the OECD has provided a more contemporary framework that responds to modern economic realities. By restructuring remote work under PE definition, clarification on transfer pricing, strengthening dispute resolution mechanisms, reinforcing source taxation for natural resources underscores the importance of embedding clarity, cooperation, and certainty into treaty language For DTAA negotiators. The update will reshape the negotiation and interpretation of tax treaties in upcoming years, likely to contribute to more consistent and predictable treaty outcomes, while presenting negotiation challenges where domestic priorities diverge.
Sanjay Mishra is a seasoned legal professional and content contributor at LEGALLANDS LLP, bringing deep expertise in corporate law, taxation, and regulatory compliance. With years of experience advising businesses on legal structuring and operational governance, he provides pragmatic insights that blend statutory knowledge with business strategy.
At Legallands.com, Sanjay writes analytical articles on company formation, financial regulation, dispute resolution, and policy reforms, helping readers understand complex legal frameworks in a simplified, practical manner.
His work reflects a strong commitment to clarity, precision, and integrity in legal communication, empowering enterprises to make informed, compliant, and growth-oriented decisions.
Co-author: Prerna