The OECD has published the first update to its Model Tax Treaty since 2017, and for globally distributed employers the consequential change is the new guidance on how cross-border remote working interacts with the “fixed place of business” permanent establishment definition. Businesses and tax authorities have been asking for it since 2020. The headline is reassuring — remote work does not automatically create a permanent establishment — but the two tests the OECD sets out give tax authorities more ground to stand on, not less.
This is HSP’s October 2026 global tax update, prepared by our global Tax Advisory team. Alongside the OECD guidance it covers two significant Australian changes, incentive regimes opening up in Singapore and Hong Kong, and a UK Autumn Budget that deliberately avoided surprises. Each item carries a practical action for groups operating across borders.
Key takeaways
- The updated OECD Model Tax Treaty confirms that remote work does not automatically trigger a permanent establishment, but introduces a 50% working time threshold and a commercial activity test that together widen the ground for a PE assertion.
- Australia’s ATO has released a five-step practical compliance guideline for its retrospective software royalty withholding tax ruling, raising the prospect of “withholding as standard” by Australian SaaS customers.
- Australia has enacted a broader capital gains tax regime for foreign residents, pulling more land, natural resource and infrastructure assets into charge.
- Singapore has widened its Enterprise Innovation Scheme, and Hong Kong has announced a 5% concessionary corporate rate from the 2027/2028 tax year for qualifying high-value activities.
- The UK Autumn Budget held the corporate rate at 25% but makes the foreign permanent establishment exemption mandatory from January 2027, removing the option to claim loss relief against UK profits.
OECD Model Tax Treaty: Remote Working and the Fixed Place of Business PE Definition
The OECD Model Tax Treaty, which sits behind the global network of double tax treaties, was last updated in 2017. Since then the working world changed and the guidance did not. Businesses and tax authorities have spent five years applying a pre-pandemic definition of a “fixed place of business” permanent establishment to cross-border remote working arrangements that the definition was never written for.
The updated guidance settles the central question: a permanent establishment is not automatically triggered by remote work. As with every PE analysis, it turns on the facts and circumstances — whether the employee’s activities are commercial in nature, and what proportion of their time is spent working remotely. Two tests now frame that analysis.
The 50% Working Time Threshold
Where an employee works from a home or other non-company location for more than 50% of their total working time over a 12-month period, this may create a fixed place of business for the employer, subject to the nature of the work performed. The threshold is not determinative on its own, but it establishes a measurable line that tax authorities can test against payroll and HR records.
The Commercial Activity Test
The second question is whether the employee’s activities in that location are commercial in nature. This goes beyond the familiar preparatory or auxiliary exemption and requires consideration of what is actually being performed. The OECD provides examples of what may constitute commercial activity, including:
- Building a customer base or identifying business opportunities
- Meeting or managing customers
- Managing supplier relationships or assessing local expertise
- Providing real-time services
- Local business collaboration, interaction or affiliate management
- In-person service delivery or training
These examples are useful on one hand. On the other, an organization would not logically hire an individual unless there was a commercial reason for doing so — which raises a fair question about whether the new test will encourage tax authorities to draw a longer bow on their PE risk analysis.
For corporate groups with remote overseas workers, the guidance does provide a useful additional framework. The age-old requirement remains unchanged: periodically review the legal and operational fact pattern of what employees are doing and where. Given the retrospective double taxation, penalties and daily compounding interest that follow an unplanned and unbudgeted permanent establishment, and with tax authorities now using payroll and corporate data-matching as standard, the consequences of getting PE — the corporate tax nexus determination — wrong cannot be overstated.
Where a group has one or two people in a country and no commercial case for an entity, an employer of record arrangement often resolves the exposure cleanly. Where an entity is warranted, the PE position needs to be registered, filed and managed before an authority raises it. Our guide to preparing for an international tax audit sets out how PE assertions tend to surface in practice.
Australia: Software Royalty Withholding Tax Ruling, Applied Retrospectively
As covered in HSP’s last global tax update, the Australian Taxation Office has issued a Ruling setting out its view of when SaaS distribution payments are royalties and therefore subject to Australian withholding tax.
The ATO has now released a Practical Compliance Guideline alongside it, setting out a five-step risk framework that taxpayers are expected to work through to self-assess the application of the new retrospective software royalty withholding tax framework. It is indicative of both the nuanced, fact-driven analysis these matters require and the ATO’s focus on the area in the digital age, particularly where the associated taxable income is being returned outside Australia.
Taxpayers are reminded that what matters is the operational substance as a whole, including the rights actually granted, rather than the strict legal form — a “distribution-only” label will not carry the analysis on its own.
The practical risk has shifted. With this guidance there is now a materially increased prospect of withholding as standard by Australian software users, which makes it critical for SaaS providers to be proactive rather than reactive. Given the retrospective application of the framework, both Australian and non-Australian tax residents providing software services to Australian customers should critically review current and previously contracted arrangements. Failing to apply the updated regulations correctly can produce real withholding tax leakage going back several years.
Australia: Expansion of Capital Gains Tax for Foreign Residents
The long-proposed changes to the Australian capital gains tax regime have now been enacted.
By broadening the definitions of “real property” and “Taxable Australian Real Property,” the new rules bring a wider range of Australian land, natural resources, energy and infrastructure-related assets and rights into the CGT regime. They also tighten the foreign-resident non-portfolio membership interest rules.
These expanded rules may substantially increase the tax liability of non-Australian tax residents holding interests or rights in Australian assets. A review of any such interests, overlaid with the potential application of the new regulations, is strongly recommended.
Singapore: Enterprise Innovation Scheme Widened
In line with the Singapore 2026 budget, the Inland Revenue Authority of Singapore has announced an expansion of the Enterprise Innovation Scheme and of the ways IRAS is facilitating applications under it.
The EIS regime is targeted at increasing inward investment and capital and business expenditure, and allows enhanced tax deductions and credits in Singapore for qualifying research and development and innovation expenditure.
Corporate groups with a Singapore presence undertaking R&D, or planning to invest in artificial intelligence development in Singapore, should review the application of the scheme and make full use of the benefits available under it.
Hong Kong: Preferential Policy Package and a 5% Concessionary Rate
The Hong Kong SAR government has unveiled a preferential policy package combining targeted tax concessions, land grants, subsidies and other incentives to attract high-value-added and high-potential industries.
Planned for implementation from the 2027/2028 tax year, the package offers qualifying entities incorporated overseas or in mainland China a 5% corporate tax rate for up to five years on eligible activities, including:
- Advanced manufacturing using innovative technology, digital equipment or advanced materials — for example green or smart construction materials and autonomous production lines.
- Innovation and technology-focused R&D, including natural and applied science research and new products — for example pre-commercial pharmaceuticals, advanced medical devices and semiconductors.
- Regional and global headquarters managing global intra-group and third-party cross-border operations, including sourcing, operations, finance and treasury.
- Logistics and supply chain management, covering storage, sorting, packaging, transport and third-party logistics activities.
The package also offers wider non-tax benefits including financial subsidies and land grants. As with the Singapore Enterprise Innovation Scheme, groups with current or planned activities in Hong Kong — or those looking to make a first move into the SEA and APAC market — should review how the tax and non-tax elements of the package might apply to them.
UK Autumn Budget: The “No Surprises” Budget
Given the current global macro environment, domestic uncertainty for businesses and the cost-of-living focus for consumers, the UK budget unsurprisingly introduced no Halloween shocks. It opted instead to let inflation and existing tax thresholds do the economic tweaking, while keeping the government’s tax promises intact.
The business-as-usual headlines:
- The UK corporate tax rate remains unchanged at 25%, with the 19% small profits rate retained.
- First year allowance tax depreciation (capital allowances) increases from 40% to 50% from January 2027.
- The bank surcharge doubles to 6% for a 15-month period from January 2027.
From a global tax perspective, two tweaks matter:
- Interest withholding tax. UK source interest derived by non-residents will be subject to 22% tax at source from April 2027, up from the current 20%.
- Foreign permanent establishment exemption. From January 2027 the FPE exemption becomes compulsory, removing the option to tax or exempt foreign branch profits and eliminating loss relief against UK profits.
The second of these is the one to model. A group currently using foreign branch losses against UK profits loses that relief, and the change is mandatory rather than elective.
What This Means for Your Group
Individually these are six unrelated developments across five jurisdictions. Together they point the same way: tax authorities are using better data, applying tests that turn on operational fact rather than legal form, and showing more willingness to apply changes retrospectively.
While the UK autumn budget changes should not represent a material change in the tax position of most UK groups, as with all tax amendments the discipline is the same. Align immediate and upcoming tax updates with your global entity footprint and operational supply chain, so the group makes tax-informed decisions rather than discovering the position after the fact.
That depends on knowing where your people, entities and contracts actually sit. HSP combines in-country tax expertise across 60+ countries with entity management, global payroll and accounting and tax compliance on a single data set, with consolidated visibility through the GateWay platform. Talk to an expert about how these changes apply to the jurisdictions where your exposure sits.
OECD Remote Work and Permanent Establishment Rules: FAQs
Does remote work automatically create a permanent establishment under the updated OECD guidance?
No. The updated OECD guidance is explicit that a permanent establishment is not automatically triggered by remote work. As with all PE analysis, the outcome depends on the facts and circumstances — principally whether the employee’s activities in that location are commercial in nature, and what proportion of their total working time is spent there. What the guidance does is give tax authorities a clearer framework to test those facts against, so the practical risk of an assertion rises even though the default answer has not changed.
What is the 50% working time threshold in the updated OECD Model Tax Treaty?
Where an employee works from a home or other non-company location for more than 50% of their total working time across a 12-month period, this may create a fixed place of business for the employer. The threshold is not decisive on its own — it operates alongside the commercial activity test and the nature of the work performed. Its practical significance is that it gives tax authorities a measurable line they can test against payroll, HR and travel records, which is data many authorities already match as standard.
Does the Australian software royalty withholding tax ruling apply to non-Australian companies?
Yes. Both Australian and non-Australian tax residents providing software services to Australian customers fall within scope. Because the framework applies retrospectively, current and previously contracted arrangements should both be reviewed. The ATO’s Practical Compliance Guideline sets out a five-step risk framework for self-assessment, and the analysis turns on the operational substance of the arrangement and the rights actually granted — a “distribution-only” label in the contract will not settle the question. Failing to apply the rules correctly can create real withholding tax leakage going back several years.
What does the mandatory UK foreign permanent establishment exemption mean for UK groups?
From January 2027 the UK foreign permanent establishment exemption becomes compulsory rather than elective. UK groups lose the option to choose whether foreign branch profits are taxed or exempt, and with it the ability to claim relief for foreign branch losses against UK profits. Groups currently using foreign branch losses in that way should model the effect before the change takes effect, as the position cannot be preserved by election.
Discuss this update with our Global Head of Tax
This update was prepared by Tom Lickess, FCA, VP, Global Head of Tax at HSP Group. If any of these changes touch the jurisdictions where your group operates, Tom and the global Tax Advisory team can assess the position and the practical options.
Email tlickess@hsp.com or get in touch with HSP Group.
