BEPS Action Plan: Action 7 – Permanent establishment (PE) status

More countries have recently been challenging overseas companies on the presence in their jurisdiction of a Permanent Establishment (PE) — so it is no surprise that the OECD would choose to pursue this area in its BEPS Action Plan. Commentary and links to content on action 7 follow.


 

Updates

 

2 September 2013

It may be difficult to address the dependent agent rule with a view to hitting the target of abusive commissionaire arrangements alone…

It seems more likely that, in pursuing these issues, the OECD will be drawn into a complete re-think of the terms not just of the dependent agent rule in Art 5(5) but also the independent agent rule in Art 5(6).

 

19 August 2013

The OECD has indicated it will be considering the current specific activity exemptions from the PE rule in Art 5(4) which deals with certain situations…

involving storage of goods etc. and business situations which are ‘preparatory and auxiliary’. This is on the basis that multinationals may artificially fragment their operations among multiple group entitles to qualify for these exemptions from PE status. However, as a practical matter we are not aware of any indications that there actually has been any particular widespread abuse in this area.

 

5 August 2013

More countries (e.g. France, Italy, Norway, Spain, UK) have recently been challenging overseas companies as regards the presence in their jurisdiction of a PE…

Discussion recently at the OECD on the Model Treaty Commentary on article 5 already featured heavily the 'economically bound' concept that can be used to challenge commissionaire arrangements (on the basis of an interpretation of the dependent agent PE test) so it is no surprise that the OECD would want to pursue this area.

Permanent establishment (PE) status archive

19 July 2013

The Plan identifies two specific areas which are of concern to the OECD in relation to the PE test …

First, commissionaire arrangements where there may be, as the Plan notes, a shift of profit from one country to another, in circumstances where there is no substantive change in the functions performed in the first country. Second, it is noted that MNCs may artificially fragment their operations among multiple group entities to qualify for the exceptions to PE status for preparatory and auxiliary status. Both areas are to be the subject of work to address artificial avoidance of PE status. This means that the OECD will work on amending the dependent agent test in Article 5(5) of the Model Treaty and the provisions dealing with the preparatory and auxiliary activities in Article 5(4) of the Model. It is noted that work on these issues will also address the related profit attribution issues. This work on changes to the Model Treaty is to be completed within two years.



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