Key Details
The OECD’s Model Tax Convention on Income and on Capital 2025 is a reference for negotiating and interpreting bilateral tax treaties. Its full edition was published on 30 September 2026 and consolidates changes approved in November 2025.
Issue | What the Edition Records |
|---|---|
Cross-border home working — revised in 2025 | India disagrees with the OECD’s new working-time and commercial-reason conditions for treating a home as an enterprise’s place of business. |
Business profits — added in 2025 | India reserves scope to include profits from same or similar sales and activities in the state where a permanent establishment operates, even when those transactions are not made through it. |
Share sales — expanded in 2025 | India expressly reserves the right to tax gains from direct and indirect transfers of shares or rights in an Indian-resident company and comparable interests in resident partnerships or trusts. |
Financial transactions — added in 2025 | India reserves the right to treat income from financial leasing and factoring as interest, and records that it has not agreed to the OECD Transfer Pricing Guidelines. |
Royalties and services — longstanding | India continues to reserve source-country taxing rights over royalties and fees for technical services. These positions were not newly created in 2025. |
A Treaty Model, Not a Uniform Tax Code
The OECD Model sets out how two countries might divide taxing rights over business profits, dividends, interest, royalties, capital gains and other income. Its commentary helps explain the proposed treaty language, while the country-positions section records where participating economies disagree or want different wording.
The 2025 update’s main additions include guidance on cross-border home working and an optional provision for activities connected with extracting natural resources. The full edition also consolidates earlier text and historical notes. Reading its India entries as one list of “new rules” would therefore confuse freshly revised positions with longstanding ones—and recorded negotiating positions with provisions actually agreed in bilateral treaties.
Home Working: When Does the Employer Have a Taxable Presence?
Under the new OECD commentary, a home used for less than 50% of an individual’s working time for an enterprise over a relevant 12-month period would generally not be regarded as that enterprise’s place of business. At 50% or more, the outcome still depends on the facts; a commercial reason for working in that country is a prominent consideration. Neither crossing the threshold nor having a worker abroad automatically creates a permanent establishment, or treaty-recognised taxable business presence.
India rejects the commentary’s conditions, including the time threshold and commercial-reason test. It considers that a home used for an enterprise’s business can be at the enterprise’s disposal and constitute its place of business. This expands an Indian objection previously recorded in a narrower home-working example. The issue is the enterprise’s possible tax presence, not merely the worker’s personal income-tax position.
Taxable Presence and Taxable Profit Are Different Questions
Once a permanent establishment exists, a treaty must still determine which business profits may be taxed in the country where it operates. India’s newly recorded Article 7 position seeks to include profits from sales of the same or similar goods, or similar activities carried on in that country, even when they are not routed through the establishment. It does not claim the enterprise’s entire worldwide profit.
India has also long preferred the pre-2010 OECD approach to attributing profits to permanent establishments. That continuing disagreement provides context for the new entry, but is not itself a fresh 2025 shift.
Share Transfers and Payment Categories Matter Too
India’s expanded capital-gains position now expressly covers indirect transfers involving shares or rights in an Indian-resident company, as well as comparable interests in resident partnerships or trusts. The wording matters where ownership is held through intermediary entities; it does not itself change the capital-gains article of any existing India treaty.
Other new entries address classification and interpretation. India reserves scope to classify financial-leasing and factoring income as interest—a distinction that can affect the treaty provision governing a payment. It also expressly states that it has not agreed to the OECD Transfer Pricing Guidelines and retains the right to depart from them under domestic law. That statement should not be read as a new transfer-pricing statute or a rejection of every shared principle.
The wider Indian preference to protect taxation where income arises predates this edition. Its positions on technical-service fees, equipment-related royalties and certain digital or remotely supplied services are important background, not September 2026 announcements.
Policy Relevance
For treaty negotiators: The 2025 entries identify points on which India may seek wording different from the OECD Model, particularly on home-working presence, profits connected with an establishment and indirect share transfers. Each bilateral negotiation still determines its own result.
For businesses: Cross-border working arrangements, ownership structures and payment labels cannot be assessed from the OECD Model alone. The applicable treaty, protocol, domestic law and facts determine the position in a particular case.
For tax administration: Greater certainty requires distinguishing whether a taxable presence exists from how much profit is attributable to it. India’s recorded disagreement with OECD guidance makes that distinction especially important for remote-working cases.
Follow the Full Report Here: OECD Model Tax Convention on Income and on Capital 2025