When Talent Crosses Borders, Transfer Pricing Follows

For most global mobility leaders, "permanent establishment" and "transfer pricing" sound like problems for the tax department. A new article from Deloitte transfer pricing specialists Kevin Norton and Alison Ambrose, published in International Tax Review, suggests the line between the two functions is getting thinner. Many of the decisions that create corporate tax exposure are made, approved or recorded inside the mobility program.

The authors start from a point our industry knows well: cross-border remote and flexible work is no longer a pandemic-era exception. It is now a permanent part of how companies compete for talent, including hiring senior people outside their traditional footprint. The corporate tax consequence is that a company can become taxable in a country for the first time, or change its tax position in a country where it already operates, simply because of where its people are working.

New OECD guidance brings some clarity. In November 2025, the OECD updated its commentary on Article 5 of the Model Tax Convention, the article that defines permanent establishment (PE). It introduced a two-part test for remote work. If an employee works from home or a similar location for less than 50% of their working time, that alone generally should not create a fixed-place PE. Above that threshold, the question becomes whether the business has a real commercial reason to operate in that location. If it doesn't, there is no PE.

But it is not a universal safe harbor. Some OECD members, including Chile, the Czech Republic and Israel, formally reserved against the change. Non-OECD countries are not bound by it at all. Only Austria has set a clear start date (January 1, 2026) for applying it. The authors also warn that the day-count test does nothing to protect against a dependent agent PE. A senior person who negotiates or concludes contracts, or plays a major role in closing them, can create taxable presence no matter how few days they spend in a country.

Transfer pricing is where the real pressure shows up. Even if a company concludes there is no PE, moving people can undermine its transfer pricing policies. Many multinationals structure local entities as "routine," low-risk operations that earn a modest cost-plus return. If a senior leader who performs key value-driving or risk-taking functions ends up employed by, living in, or relocating to that country, it becomes hard to argue that the entity is still routine. Profit-split models based on headcount and seniority can break down the same way. When key people or roles relocate, companies may also face exit-tax questions, because functions and value have effectively moved with them.

Tax authorities are getting better at spotting this. The authors note that PE issues usually come to light during broader transfer pricing audits. Authorities are increasingly using data matching and AI tools to cross-reference visa records, personal tax returns and social security filings, then compare that picture of where people actually work against a company's stated position. Meanwhile, the authors observe that many companies still struggle to track cross-border work. HR and mobility often aren't integrated with tax, and employee-initiated remote arrangements are especially hard to monitor.

The OECD isn't finished. A separate November 2025 consultation on the global mobility of individuals covers employment tax and transfer pricing, not just PE. The authors expect any near-term OECD update to identify areas for further work rather than deliver answers. Until changes reach domestic law and treaties, companies have to operate under current rules.

Key takeaways for mobility leaders

Your data is the early-warning system. The authors say the starting point is visibility into where employees work, for how long and in what role. Mobility already holds much of that information: assignment records, immigration filings, day tracking for business travelers, and relocation histories. Consider whether that data reaches your tax colleagues in a form they can use, and whether it would match the data a tax authority could assemble on its own.

Treat senior moves as a different category. Relocating an executive or other key decision-maker is not just a bigger relocation package. It can create PE and transfer pricing consequences that a mid-level move would not. Consider adding a tax review trigger to your approval workflow for senior or revenue-generating roles, whether the move is a long-term assignment, a permanent transfer or a request to work remotely from another country.

Don't write the 50% rule into policy as a guarantee. The new OECD threshold is useful for assessing risk, but reservations by some countries and the dependent agent exposure mean it shouldn't appear in a remote work or "work from anywhere" policy as a promise of no tax impact.

Employee-initiated arrangements need a front door. The hardest cases to monitor are often the ones that never enter the formal mobility program, such as the permanent remote request, the "trailing spouse" move, or the leader who quietly relocates for personal reasons. If these requests don't pass through a consistent intake and review process, they are likely your biggest blind spot. (Our earlier post on Extended Business Travelers explored a related gap.)

Document the business rationale at the time of the decision. Where moves change the facts underlying transfer pricing policies, the authors stress the need for documentation created at the time. Assignment letters, business cases and role descriptions prepared by mobility can become part of the company's audit defense, so they should accurately reflect what the person actually does and where.

Earn a seat at the governance table. The authors describe global mobility as a governance issue rather than a single tax issue, requiring coordinated policies, monitoring and evidence. That is an opening for mobility leaders to formalize regular coordination with tax, payroll, legal and HR rather than getting pulled in only after a problem appears.

The authors conclude with a simple message: don't wait for a dispute to act. For mobility leaders, that means making sure the program's data, approval processes and documentation are designed with corporate tax exposure in mind, not just the employee experience.