New Tax and Labor Rules for Global Remote Work
The OECD is updating its model tax convention to address permanent establishment risks for companies with cross-border remote employees. In Canada, a public service union filed an unfair labor complaint over a new in-office mandate, while the UK is preparing reforms to strengthen employees' statutory right to request flexible work.
- The OECD's November 2025 update to its Model Tax Convention introduced a new two-part test to assess permanent establishment (PE) risk for remote workers. It includes a "temporal test," where a home office is generally not considered a "fixed place of business" if an employee spends less than 50% of their total working time there over a 12-month period. - If the 50% threshold is met, a qualitative "commercial reason test" is applied to determine if the employee's presence in the foreign country serves a genuine business purpose beyond personal convenience. This framework replaces outdated guidance from 2012. - The simple act of an employee working from home in another country does not automatically create a permanent establishment for the employer, providing some relief for companies managing distributed teams. - In Canada, the Professional Institute of the Public Service of Canada (PIPSC) filed its complaint with the Federal Public Sector Labour Relations and Employment Board. The union argues the government violated good-faith bargaining by unilaterally changing employment conditions while contract negotiations are active. - The specific change mandated by the Office of the Chief Human Resources Officer requires federal employees to increase their in-office presence from three to four days per week, effective July 6, 2026. PIPSC stated that the government has not presented evidence to justify this expanded requirement. - The Public Service Alliance of Canada (PSAC), another federal union, filed a similar unfair labor practice complaint regarding the new in-office mandate earlier in February 2026. - The UK's new flexible work legislation, part of the Employment Rights Act, allows employees to make two statutory requests for flexible work in a 12-month period, up from one. It also reduces the employer's response time from three months to two. - Under the UK reforms, employers must consult with an employee before rejecting a flexible working request; they can no longer deny it outright without discussion. However, the bill does not change the existing statutory grounds that an employer can use for refusing a request, such as the burden of additional costs.
