On October 13, 2025, the OECD Committee on Fiscal Affairs approved a document containing the update to the OECD Model Tax Convention on Income and on Capital (hereinafter, the “OECD Model 2025 Update”). This document was ratified by the OECD Council on November 18 and published on November 19 of the same year.

The OECD Model 2025 Update incorporates crucial changes in response to the transformation of global business practices, the regulation of remote work, and the increasing complexity of international corporate structures. Its main objective is to strengthen consistency in the interpretation of treaties and reduce uncertainty in tax matters. The modifications focus primarily on the Commentaries, which are official explanations published by the OECD and serve as interpretative tools.

Key Changes

Remote Work from Abroad: The 50% Rule for Permanent Establishment (PE)

The OECD aims to reduce uncertainty surrounding whether an employee working from home creates a PE for a foreign enterprise.

• The new rule: The OECD Model 2025 Update establishes that if the employee works less than 50% of their time from home over a 12-month period, the enterprise will not be considered to have a PE there.
• Other factors: If the 50% threshold is exceeded and/or the home-based work is mandatory or continuous, the risk of a “fixed place of business” remains. It is also essential to assess the business reasons allowing the employee to perform their functions from home and the nature of the activities carried out.

Extractive Industry: Stricter Threshold for PE

For mining, oil, or gas companies, more stringent rules are introduced.

• The update allows countries to agree on a very short time frame (sometimes only 30 days) for exploration or exploitation activities to constitute a PE, whether onshore or offshore.

Transfer Pricing and Intercompany Loans

The OECD Model 2025 Update aims to clarify the relationship between domestic legislation and international treaties (specifically, Article 9).

• Debt vs. Equity: The new Commentaries provide various approaches to determine whether a loan is genuinely a “loan” or a capital contribution, using both the OECD Transfer Pricing Guidelines and domestic law.
• Deductibility: It is clarified that the OECD Transfer Pricing Guidelines determine only the nature of the transaction and whether it is at arm’s length; however, each country’s domestic law determines whether the expense is deductible and whether limitations apply (such as thin capitalization rules).

Dispute Resolution

A paragraph is added to Article 25 to better coordinate tax disputes with other international agreements (such as the General Agreement on Trade in Services — GATS). Additionally, the new Commentaries specify that when transfer pricing disputes arise and the “Amount B” of Pillar One applies, tax authorities must follow the new OECD guidance on this matter.

Tax Residence — U.S. Position

The United States has included an official clarification (paragraph 27.1 of the Commentary to Article 4) redefining who it considers a “resident” for treaty benefit purposes. According to the U.S. government, if a jurisdiction allows an individual to be taxed only on a portion of their income (limited base) or through a fixed annual payment, that person will not be regarded as a resident for treaty purposes.

Exchange of Information

Certain measures are added to the Commentaries on Article 26 to reinforce rules regarding the exchange of tax information, aiming to safeguard the confidentiality of such data.

Conclusion

To navigate the OECD Model 2025 changes, it is recommended to monitor the following key areas: remote work (50% rule), the substance of intercompany debt, and the time thresholds in extractive projects to avoid triggering PE exposure.

How JA Del Río Can Help

• Review the status and documentation of international employees to ensure they do not exceed the 50% limit and to mitigate PE risks.
• Provide tax planning for extractive industry activities, taking into account the new thresholds related to Permanent Establishments.
• Diagnose the documentation of financial transactions to ensure loans meet the new “debt” criteria and that interest is truly deductible, both from a Mexican and international tax perspective.
• Monitor partners or executives under special tax regimes who could risk losing treaty benefits with the United States.

J.A. DEL RÍO offers a wide array of specialized consulting services to assist you with these and other matters, in order to ensure that your project complies with the applicable characteristics  contained in this agreement.

If you have any questions, J.A. DEL RÍO can provide you with our experts to advise in matters concerning compliance with your legal and tax obligations. Once again, please let us know if we may be of any further assistance to you at: contacto@jadelrio.com.