OECD PE developments

OECD updates Commentary on Article 5

On 19 November 2025, the Organisation for Economic Co-operation and Development (OECD) released the 2025 Update to the OECD Model Tax Convention (the 2025 Update).

Among other updates, the 2025 Update introduces an analytical framework that clarifies when use of a home or other relevant place, such as a second home, a holiday rental or the home of a friend or relative, in another country to carry out activities related to the business of an enterprise can amount to a fixed place of business permanent establishment (PE) of the enterprise. Under the framework, a "50% of total working time" reference point is used as a general benchmark. The framework focuses on whether the location is used regularly and substantially rather than intermittently, whether the individual's presence serves a business purpose such as servicing local customers or suppliers rather than personal convenience, and whether the enterprise in practice carries on business from the location even if it does not formally own or lease the premises. Five illustrative examples are included.

Another notable revision in the 2025 Update includes an optional time-based PE provision for extractive activities that contains model anti-contract-splitting language and a capital gains paragraph, as well as optional drafting approaches to extend source taxing rights over employment income tied to extractive activities.

See EY Global Tax Alert, OECD 2025 Update to the OECD Model Tax Convention — key highlights, dated 5 December 2025.

PE rulings

Denmark clarifies PE treatment of onshore support to offshore operations

On 18 November 2025, the Danish Tax Council published a binding ruling (SKM2025.641.SR) confirming that a nonresident company operating an offshore installation outside Denmark does not have a PE in Denmark in respect of its onshore support activities.

In this ruling, the taxpayer sought to expand its onshore activities in Denmark (the taxpayer had previously received a non-PE binding ruling for activities limited to accommodating foreign employees performing minor tasks) by allowing offshore technicians, during periods of inclement weather, to perform additional planning and support tasks onshore. These activities included preparing work schedules and procedures, documenting offshore work, coordinating logistics and follow up with subcontractors and compiling reports, all under the coordination and supervision of an offshore site planner acting in accordance with detailed guidelines issued by the foreign head office.

Despite this broader scope of onshore activities, the Tax Council held that the onshore activities remained preparatory and auxiliary to the group's core offshore operations and therefore did not constitute a PE under the Danish Corporation Tax Act or the applicable tax treaty.

PE case law

India's High Court clarifies Service PE day-count and rejects Virtual PE concept

On 4 December 2025, the Delhi High Court, in ITA 353/2025 and ITA 354/2025, held that a law firm providing legal services to Indian clients did not have a Service PE or a Virtual PE in India in respect of those services. The case concerned two employees of a Singapore-based law firm who, in one year, traveled to India to work on client matters and, in another year, provided services remotely from Singapore to Indian clients.

On the Service PE point, the High Court stressed that the India-Singapore tax treaty requires the "furnishing of services within" India through employees or other personnel. This means that only days on which services are actually performed in India can be counted toward the threshold. Based on detailed time records, the Court agreed that vacation days and days spent on general business development could not be treated as days of service performance, and that "common days" on which multiple employees were in India at the same time should be counted once, not multiplied by the number of employees present. After excluding those days, the Singapore firm was found to have performed services in India for only 44 days, i.e., below the 90-day threshold for creating a Service PE.

Turning to the Virtual PE argument, the High Court was equally clear that neither the India-Singapore tax treaty nor Indian domestic law currently recognizes such a concept. Although the Court acknowledged the real policy challenges of taxing an increasingly digital economy, it held that any move away from a physical-presence standard must be expressly reflected in treaty text or legislation and cannot be inferred from OECD reports or the practice of other countries (such as Saudi Arabia). In the absence of explicit rules to that effect, legal and other advisory services provided remotely from outside India, even when directed at Indian clients and projects, do not in themselves create a PE in India.

Caribbean Court of Justice upholds withholding tax on head office service charges

On 4 November 2025, the Caribbean Court of Justice (CCJ) delivered its decision in a case upholding Saint Lucia's assessment of withholding tax on payments from a local branch to its Canadian head office and confirming a restrictive approach to the deductibility of interest expense. The dispute centered on amounts paid by the Saint Lucian branch to its Canadian head office for group support and management services, on which the Comptroller of Inland Revenue levied withholding tax, as well as on whether the bank's interest expense on customer deposits could be treated as "cost of sales." The taxpayer maintained that the payments were mere reimbursements. After the Income Tax Appeal Commissioners, the High Court and the Court of Appeal all found largely in favor of the tax authority; the taxpayer brought a final appeal to the CCJ.

On the withholding tax issue, the CCJ unanimously confirmed that the payments for head office and regional support services fell within the statutory concept of "management charges" and were therefore subject to withholding tax. The Court held that Parliament had deliberately extended the regime to capture outbound payments from branches of nonresident companies to related entities abroad, and that this policy choice could not be sidestepped by characterizing the payments as reimbursements. It also endorsed a broad view of "income" for withholding tax purposes, covering payments for services whether or not they include a profit element, and confirmed that Saint Lucian law does not require the services to be performed locally; what matters is that income accrues to a nonresident from any source.

The CCJ likewise sided with the tax authority on the treatment of interest expense, accepting that interest paid on customer deposits in the banking sector can properly be classified as "cost of sales," thereby limiting the scope for deduction. The Court stressed that the notion of "cost of sales" is not confined to the sale of physical goods and must be understood in light of modern commercial practice, in which banks effectively sell financial services and the cost of funding is a direct input to that activity.

PE domestic law

Ghana seeks to tax nonresidents with significant digital/economic presence

On 13 November 2025, Ghana's Minister for Finance presented to Parliament the 2026 Budget Statement and Economic Policy of the Government of Ghana.

Among other proposals, the Government of Ghana seeks tax nonresidents with significant digital or economic presence, pending full reform. Its implementation will involve stakeholder engagement and a draft bill to Parliament in the 2027 budget.

The introduction of a digital service income tax through the Significant Economic Presence Rule is set to begin in 2026, reflecting the Government's commitment to taxing the digital economy, particularly targeting nonresident companies that generate income from transactions with persons in Ghana. It remains unclear if a de minimis turnover threshold will be established to determine applicability.

See EY Global Tax Alert, Ghana's finance minister presents 2026 budget statement and economic policy, dated 26 November 2025.

United Kingdom proposes updates to PE legislation

On 4 December 2025, the United Kingdom (UK) released the Finance (No.2) Bill 2025-26, which includes significant tax measures focused on employment and individual taxation, as well as certain developments in relation to corporation tax matters relevant to cross-border transactions.

In particular, measures in the bill seek to bring the UK PE rules into line with the latest international consensus on both the definition of a PE and the attribution of profits to a PE. A new mechanism is also being introduced for a UK-resident company to claim relief if a transfer pricing adjustment is made to a connected foreign company that relates to a UK PE.

Finally, amendments are to be made to the legislation and associated Statement of Practice 1 (2001) in relation to the UK's Investment Manager Exemption, which applies to ensure that a non-UK fund is not treated as having a UK PE by virtue of using a UK-based investment manager. The amendments are intended to clarify the operation of this exemption, to address the interaction with a revised definition of a dependent agent PE (in line with international consensus) and to make it easier for taxpayers to apply.