Recent Developments in Double Tax Treaties

The last quarter of 2025 and the beginning of 2026 saw several significant developments in bilateral double taxation treaties (DTTs). These developments include amendments through protocols, the entry into force of new treaties, and the modernization of existing agreements to reflect post-BEPS standards and evolving cross-border employment patterns. The following sections outline the most relevant treaties and emphasize the principal changes introduced.

Netherlands – Germany: Protocol Amending the 2012 Double Tax Treaty

A protocol signed on 14 April 2025 amended the 2012 double taxation treaty between the Netherlands and Germany. The amendment entered into force on 31 December 2025 and applies from 1 January 2026. The principal change introduced by the protocol addresses the tax treatment of cross-border telework. Traditionally, employment income under tax treaties is taxed in the jurisdiction where the work is physically performed.

As remote work increased following the COVID-19 pandemic, this rule created the risk that employees working from home in their residence state would shift part of the taxing rights away from the employer’s jurisdiction. The protocol therefore introduces a specific “34-day rule.” Under this rule, cross-border employees may work from their residence state for up to 34 days per year without altering the allocation of taxing rights. During this period, the entire employment income remains taxable in the state of the employer.

A home-office day is counted if more than 30 minutes of work are performed outside the employer’s state, including work performed in the employee’s residence state or in a third country. The rule applies to both private-sector and public-sector employees. The purpose of the amendment is to provide legal certainty and to reduce administrative complexity for cross-border workers and employers.

Switzerland – France: Amendment to the Double Taxation Agreement

The additional agreement amending the double taxation convention between Switzerland and France entered into force on 24 July 2025 and became applicable from 1 January 2026.

The key change introduced by this amendment establishes a permanent framework for cross-border teleworking by individuals residing in France and employed by Swiss companies. The agreement confirms a 40 percent teleworking threshold, meaning that employees may perform up to 40 percent of their annual working time from France without shifting the taxation of their employment income from Switzerland to France.

Several operational conditions accompany this rule. The 40 percent threshold includes up to ten days of business travel outside Switzerland, and the regime primarily applies to individuals holding cross-border commuter permits. In addition, the amendment introduces automatic exchange of information between the French and Swiss tax authorities and additional employer reporting obligations to ensure transparency.

If the teleworking threshold is exceeded, the ordinary treaty rules apply. In such cases, the portion of employment income attributable to work performed in France becomes taxable in France under the standard allocation of taxing rights.

Switzerland – Hungary: Protocol Amending the Double Taxation Agreement

The amendment primarily modernizes the treaty to align it with the OECD Base Erosion and Profit Shifting (BEPS) standards. The protocol introduces several structural changes aimed at preventing treaty abuse and strengthening administrative cooperation.

The most significant change is the inclusion of a Principal Purpose Test (PPT), which denies treaty benefits where obtaining those benefits was one of the principal purposes of an arrangement or transaction. The protocol also revises the treaty preamble to emphasize the objective of preventing tax avoidance and treaty shopping.

Albania – Luxembourg: Entry into Force and Modernization of the Tax Treaty

Another important development concerns the double taxation treaty between Albania and Luxembourg. The agreement originates from the Convention for the Avoidance of Double Taxation on Income and Capital signed on 14 January 2009, which represented the first tax treaty between the two jurisdictions.

A protocol signed on 21 October 2020 updated the original agreement. Following the completion of ratification procedures in both countries, the treaty and its protocol entered into force during 2025 and became applicable from 1 January 2026.

One of the most relevant changes concerns the reduction of withholding tax rates on dividends in cross-border situations. The treaty provides a 5% percent withholding tax rate when the beneficial owner is a qualifying company is a resident of the other state and holds at least 25% share capital.

The treaty covers taxes on income and capital imposed by both states, including corporate income tax and individual income tax. In accordance with the OECD Model Tax Convention, it allocates taxing rights over major categories of income such as business profits, dividends, interest and royalties, employment income, capital gains, and income from immovable property.

Additional Treaty Developments in Late 2025

Several additional bilateral treaty developments occurred during the same period.

The United Kingdom–Romania Double Tax Convention entered into force on 23 December 2025, replacing the earlier agreement between the two countries and introducing updated provisions on permanent establishments, withholding taxes, and dispute resolution procedures.

During November and December 2025, the United Kingdom–Peru double taxation treaty also progressed toward entry into force after both states completed their ratification procedures. The treaty will generally apply from 1 January of the year following its entry into force.

Overall Trends

The treaty developments observed in the final months of 2025 highlight two important trends in the evolution of the international tax treaty network.

First, several treaties have been adapted to address cross-border teleworking, as illustrated by the amendments between the Netherlands and Germany and between Switzerland and France. These changes aim to prevent unintended shifts in taxing rights while reducing administrative burdens for cross-border employees and employers.

Second, treaty updates increasingly incorporate BEPS-related anti-abuse provisions, including the introduction of principal purpose tests and strengthened exchange-of-information mechanisms. The protocol amending the Switzerland–Hungary treaty and the modernization of the Albania–Luxembourg agreement illustrate this broader shift toward enhanced tax transparency and the prevention of treaty abuse.