Last Updated on December 1, 2025 3:41 pm by INDIAN AWAAZ
R. Suryamurthy
The Organisation for Economic Co-operation and Development OECD has opened one of its most ambitious reviews of the international tax system in years, warning that digital mobility and remote work are now generating tax exposures that traditional rules were never designed to handle. The consultation — running until 22 December — is aimed at mapping how fast-changing work patterns are creating uncertainty around everything from individual residency to permanent establishment (PE) thresholds, payroll obligations and profit attribution.
The OECD’s Inclusive Framework, representing 143 jurisdictions, agreed earlier this year that “global mobility of individuals” has expanded so sharply that existing treaty and domestic rules no longer align with lived reality. Workers increasingly deliver services across borders without physically crossing them; employers are managing globally dispersed teams; and tax authorities, the OECD says, are struggling to apply concepts built for a world where mobility was rare and usually physical.
“Technology has potentially turned many types of workers into frontier workers irrespective of how close they live to a physical border,” the consultation document notes, adding that post-pandemic teleworking has become embedded in labour markets even as companies attempt partial office returns.
A Surge in ‘Dual Residency’ Conflicts
Tax practitioners say the OECD has timed its exercise well. India-based experts argue that the pressure on existing rules is particularly acute for globally mobile professionals, remote contractors, hybrid executives and short-stint project staff.
“Cross-border remote work complicates personal income taxation, primarily because traditional tax-residence tests — physical presence, centre of vital interests or employment location — don’t neatly apply when employees spend long periods working from third jurisdictions,” said Aditya Bhattacharya, Partner at King Stubb & Kasiva. Such arrangements, he warned, can “inadvertently create dual residency, triggering competing tax claims or tie-breaker rules.”
Salary sourcing — typically tied to where employment is “exercised” — becomes contentious when the place of effective work shifts abroad while the employer remains elsewhere. Bhattacharya also flagged spill-over complications in social-security coordination, payroll withholding and the risk that home-based employees expose companies to fixed-place, service or dependent-agent PEs.
India’s Mobility Patterns Make Stable Rules Critical
India sits at the heart of these tensions, analysts say, because of its unusually large globally dispersed workforce across IT services, consulting, outsourcing, global capability centres (GCCs) and overseas secondments. India is not an OECD member, but OECD guidance strongly influences Indian competent-authority positions and treaty interpretations.
“With technology enabling employees to work from anywhere, the current rules on tax residency, allocation of employment income, withholding obligations and treatment of share-based compensation are becoming complex and posing double-taxation risks,” said Amit Maheshwari, Tax Partner at AKM Global.
Maheshwari noted that India’s residency rules — including the 183-day test and conditions for “resident but not ordinarily resident” classification — often collide with the rules of foreign jurisdictions. “This can lead to dual residency, double taxation, filing requirements in multiple countries, and questions on whether the foreign employer has a PE in India,” he said. The reverse scenario — foreign employees temporarily working from India — raises similar ambiguity under Indian law.
He also pointed to fresh transfer-pricing exposure and place-of-effective-management (PoEM) concerns. “A senior executive attending virtual board meetings from another jurisdiction could inadvertently shift a company’s tax residence, while a remote employee performing core activities from India may raise concerns under Article 5 (PE) of India’s treaties,” he said.
Maheshwari stressed that the OECD is still in diagnostic mode: “This first phase is purely information-gathering. More definitive guidance will likely come late 2026.”
Corporate Exposure, PE Thresholds and Profit Attribution
The OECD’s paper highlights three main routes through which remote work may trigger unexpected corporate tax exposure: fixed-place PE, dependent-agent PE and services PE. It also acknowledges the long-running difficulty of attributing profits to such PEs when key functions, management and decision-making are scattered across jurisdictions.
Nitin Narang, Partner at Nangia & Co LLP, said the OECD has correctly emphasised both “opportunities and concerns” arising from global mobility. The first phase, he noted, is narrowly focused on mapping real-world fact patterns that strain current rules — from residence tests to workday allocation and the interaction between tax, labour and social-security regimes.
He added that governments are becoming increasingly concerned about inadvertent PEs, dispersed management affecting corporate residence, and the challenge of aligning treaty PE findings with transfer-pricing outcomes. “The consultation requests feedback on particular fact patterns that pose difficult issues for the application of transfer pricing regulations,” Narang said.
India’s Deemed-Residency Rule Needs Explicit OECD Treatment
A fourth expert, Rahul Charkha, Partner at Economic Law Practice, said the OECD should go further in explicitly integrating India-specific residence rules into its illustrations, particularly for globally mobile citizens.
Charkha pointed to Section 6(1A) of the Income-tax Act (retained under the 2025 Act), which deems certain Indian citizens — those earning more than ₹15 lakh domestically and not liable to tax elsewhere — to be residents of India. This rule often affects digital nomads, short-term project workers and individuals working from low-tax jurisdictions.
“This deemed-residency rule should be reflected in OECD examples addressing ‘stateless’ or low-tax-jurisdiction teleworkers to prevent mismatches where source-state withholding applies but residence-state relief is uncertain,” Charkha said. “It would align with the OECD’s objective of not impeding mobility while safeguarding intended tax outcomes.”
He also recommended an overhaul of frontier-worker arrangements to reflect hybrid work — either allocating exclusive taxing rights to one state or using shared withholding with year-end reconciliation.
On equity compensation, he urged a standardised OECD model mandating service-day apportionment across jurisdictions so employees and employers are not trapped in refund-and-credit disputes.
Calls for Safe Harbours and Joint PE/Transfer-Pricing Rulings
For corporate taxation, Charkha proposed operationalising the OECD Model Tax Convention 2025 through a coordinated safe harbour that would ensure limited, non-client-facing remote work below a quantitative threshold does not create a PE.
“For cases outside the safe harbour, bilateral advance rulings or APAs should jointly determine PE status and profit attribution in a single instrument,” he said, arguing that this would eliminate the common mismatch where treaty interpretations find a PE but transfer-pricing authorities attribute little or no profit — or vice versa.
OECD Seeks Evidence Before Drafting New Rules
The OECD has asked stakeholders worldwide for data on the scale of remote work, examples of double-taxation, administrative burdens, payroll challenges, corporate PE disputes and the interaction of tax with social-security and immigration frameworks. It is also seeking views on whether digital tools, bilateral agreements or updated tie-breaker tests could make the system easier to apply.
A follow-up consultation meeting is planned for January 2026, and the work will continue through next year.
For now, practitioners broadly agree on one point: tax rules were built for a world in which mobility was exceptional. As one adviser put it, the workforce has outgrown the architecture — and the OECD’s process may be the first serious attempt to rebuild it for a borderless digital economy.