Articles 12 to 15 - Artificial Avoidance of Permanent Establishment (PE) Status

Article 12 - Artificial Avoidance of Permanent Establishment Status through Commissionnaire Arrangements and Similar Strategies 

Article 13 - Artificial Avoidance of Permanent Establishment Status through the Specific Activity Exemptions 

  • ​the BEPS perspective [under construction]
  • application of article 13 to the Covered Tax Agreements - country survey [under construction]
  • concluding comments [under construction]

Article 14 - Splitting-up of Contracts

Article 15 - Definition of a Person Closely Related to an Enterprise

 


 

Tax treaties generally provide that the business profits of a foreign enterprise are taxable in a State only to the extent that the enterprise has in that State a permanent establishment (PE) to which the profits are attributable. The definition of PE included in tax treaties is therefore crucial in determining whether a non-resident enterprise must pay income tax in another State.

 

The Action 7 of the BEPS 2015 Final Report (Permanent Establishment Status) includes the changes that will be made to the definition of PE in Article 5 of the OECD Model Tax Convention, which is widely used as the basis for negotiating tax treaties, and the changes are also incorporated in the multilateral instrument (the MLI), which operates alongside the existing tax treaties by modifying the application of the tax treaty provisions. 

 

Those changes mentioned in the preceding paragraph are:

  • Artificial Avoidance of Permanent Establishment Status through Commissionnaire Arrangements and Similar Strategies [Article 12, the MLI];
  • Artificial Avoidance of Permanent Establishment Status through the Specific Activity Exemptions [Article 13, the MLI];
  • Splitting-up contracts between closely related enterprises [Article 14, the MLI];
  • Defining a person closed related to an enterprise [Article 15, the MLI].

 

Structure and Contents of Articles 12 to 15 of the Multilateral Instrument (the MLI)

 

Article 12 [read]

Article 13 [read]

Article 14 [read]

Article 15 [read]

Artificial Avoidance of Permanent Establishment Status through Commissionnaire Arrangements and Similar Strategies

Artificial Avoidance of Permanent Establishment Status through the Specific Activity Exemptions

Splitting-up of Contracts

Definition of a Person Closely Related to an Enterprise

 

 

 

 

Operative Clauses

Operative Clauses

Operative Clauses

Operative Clauses

Article 12(1) and Article 12(2)

Article 13(1)

A party may choose to apply Option A (Article 13(2)), Option B (Article 13(3)), or neither Option

Article 14(1)

Article 15(1)

 

Article 13 (4) [Note 1, Opt-in provision]

 

 

 

 

 

 

Compatibility Clauses

Compatibility Clauses

Compatibility Clauses

Compatibility Clauses

Article 12(3)(a)

Article 12(3)(b)

Article 13(5)(a), modifying the application of 13(2) or 13(3);

Article 13(5)(b), modifying the application of 13(4)

Article 14(2)

 

 

 

 

 

Reservation Clauses

Reservation Clauses

Reservation Clauses

Reservation Clauses

Article 12(4)

Article 13(6)(a);

Article 13(6)(b); and

Article 13(6)(c) [note]

Article 14(3)

Article 15(2)

 

 

 

 

Notification Clauses

Notification Clauses

Notification Clauses

Notification Clauses

Article 12(5)

Article 13(7) and (8)

Article 14(4)

(Not applicable)

 

[Note 1 relating to Article 13(4)]

  • Article 13(4) is an opt-in provision providing anti-fragmentation rules for a contracting jurisdiction to prevent the circumvention of the specific activity exceptions. 
  • A provision of a CTA that lists specific activities deemed not to constitute a PE shall not apply to a fixed place of business ... provided that the business activities carried on by the same enterprise or closely related enterprises at the same place or at two places in the same contracting jurisdiction ... constitutes complementary functions that are part of a cohesive business operation.

[Note 2 relating to Article 13(6)]

  • Article 13(6)(a), providing that a contracting jurisdiction may opt-out of the entire Article 13;
  • Article 13(6)(b), providing that a contracting jurisdiction may reserve the right for Article 13(2) not to apply to its CTAs explicitly providing that a list of specific activities deemed not o constitute a PE if a certain activity is subject to the condition of preparatory or auxiliary character;
  • Article 13(6)(c), providing that a contracting jurisdiction may reserve its right for Article 13(4) not to apply to its CTAs.

 

Articles 12 to 14 of the MLI address the issue relating to the avoidance of the PE status as provided under tax agreements. The PE status is an exception to, or a limitation imposed on, the source jurisdiction. However, in order to protect the tax base of the source country, the PE Status is in turn restricted or limited by the following exceptions: Commissionnaire arrangement (Article 12), specific activities (Article 13), and the disregard of split-up contracts (Article 14). A contracting jurisdiction that adopts either one of Articles 12, 13 and 14 must adopt Article 15 that defines the term "a person closely related to an enterprise".

 

 

 

 

Article 12 – Artificial Avoidance of Permanent Establishment Status through Commissionnaire Arrangements and Similar Strategies

 

Article 12(1) and Article 12(2) of the MLI replicate the contexts of Article 5(5) and Article 5(6) of the 2017 update of the Model Tax Convention. 

 

In many cases, commissionaire arrangements and similar strategies were put in place primarily in order to erode the taxable base of the contracting state where sales took place. Changes to the wording of Article 5(5) and 5(6) are therefore needed in order to address such strategies.

 

The 2017 update on Model Tax Convention has incorporated the recommendation of the 2015 Final Report under Action 7 of the BEPS package, which expands the scope of the activities of the a person acting in a contracting state for an enterprise to cover the activity that plays a principal role leading to the conclusion of contracts and the supply of services and intangible properties. Such commissionaire arrangements trigger a taxable presence in the state with respect to the activities which that person performs for the enterprise. Consequently that enterprise shall be deemed to have a PE in that state in respect of the activities which that person undertakes on its behalf, unless those activities fall under the scope of specific activity exception mentioned in paragraph 4 of Article 5 which, if done through a fixed place of business, would not make this fixed place of business a PE under the provision of that paragraph.

 

A comparison between the 2014 Model Tax Convention and the 2017 update of the Model Tax Convention is given below:

 

2014 OECD Model Tax Convention – Article 5(5)

2017 update on OECD Model Tax Convention – Article 5(5)

5. Notwithstanding the provisions of paragraphs 1 and 2, where a person - other than an agent of an independent status to whom paragraph 6 applies - is acting on behalf of an enterprise and has, and habitually exercises, in a Contracting State an authority to conclude contracts in the name of the enterprise, that enterprise shall be deemed to have a permanent establishment in that State in respect of any activities which that person undertakes for the enterprise, unless the activities of such person are limited to those mentioned in paragraph 4 which, if exercised through a fixed place of business, would not make this fixed place of business a permanent establishment under the provisions of that paragraph.

 

5. Notwithstanding the provisions of paragraphs 1 and 2 but subject to the provisions of paragraph 6, where a person is acting in a Contracting State on behalf of an enterprise and, in doing so, habitually concludes contracts, or habitually plays the principal role leading to the conclusion of contracts that are routinely concluded without material modification by the enterprise, and these contracts are

a) in the name of the enterprise, or

b) for the transfer of the ownership of, or for the granting of the right to use, property owned by that enterprise or that the enterprise has the right to use, or

c) for the provision of services by that enterprise,

that enterprise shall be deemed to have a permanent establishment in that State in respect of any activities which that person undertakes for the enterprise, unless the activities of such person are limited to those mentioned in paragraph 4 which, if exercised through a fixed place of business (other than a fixed place of business to which paragraph 4.1 would apply), would not make this fixed place of business a permanent establishment under the provisions of that paragraph.

 

 

Similarly, the 2017 update of the Model Tax Convention redefines that the activities performed by an independent agent do not include those performed by a closely connected person.

2014 OECD Model Tax Convention – Article 5(6)

2017 update on OECD Model Tax Convention – Article 5(6)

6. An enterprise shall not be deemed to have a permanent establishment in a Contracting State merely because it carries on business in that State through a broker, general commission agent or any other agent of an independent status, provided that such persons are acting in the ordinary course of their business.

6. Paragraph 5 shall not apply where the person acting in a Contracting State on behalf of an enterprise of the other Contracting State carries on business in the first-mentioned State as an independent agent and acts for the enterprise in the ordinary course of that business. Where, however, a person acts exclusively or almost exclusively on behalf of one or more enterprises to which it is closely related, that person shall not be considered to be an independent agent within the meaning of this paragraph with respect to any such enterprise.

 

 

 

 

 

Article 13 - Artificial Avoidance of Permanent Establishment Status through the Specific Activity Exemptions

 

1. Introduction

 

Action 7 - 2015 Final Report under the OECD/G20 BEPS Action Plan, titled “Preventing the Artificial Avoidance of Permanent Establishment Status” (the Action 7 Final Report), addresses the issue of artificial avoidance of permanent establishment (PE) status, and that includes a review of the definition to prevent the use of certain common tax avoidance strategies that are currently used to circumvent the existing PE definition. Those strategies result in shifting profits out of the country where the sales took place without a substantive change in the functions performed in that country, including (i) the arrangements through which taxpayers replace subsidiaries that traditionally acted as distributors by commissionaire arrangements, (ii) the splitting-up of contracts, and (iii) the exploitation of the specific exceptions to the PE definition provided for by Article 5(4) of the 2014 OECD Model Tax Convention (the MTC), an issue which is particularly relevant in the digital economy.

 

The Action 7 2015 Final Report introduced changes made to the definition of permanent establishment (the PE) in Article 5 of the OECD Model Tax Convention, which are used as the basis for tax treaties negotiations, and the changes are also incorporated in the multilateral instrument (the MLI), which operates alongside the existing tax treaties by modifying the application of the tax treaty provisions. 

 

2. Article 5(4) of the Model Tax Convention - Specific Activity Exceptions

 

The provisions of Article 5(4) of the Model Tax Convention (the MTC), which deals with the specific activity exceptions, was redrafted by removing the phrase "of a preparatory or auxiliary character" from sub-paragraph (e) under paragraph 4. This is to ensure that all the sub-paragraphs of Article 5(4) are subject to a "preparatory or auxiliary character" condition. In contrast to the recommended changes to the aforesaid condition, the policy makers of some countries consider that some of the activities referred to under subparagraphs from (a) to (d) in paragraph 4 are intrinsically preparatory or auxiliary and, in order to provide greater certainty for both tax administrations and taxpayers, take the view that these activities should not be subject to the condition that they be of a preparatory or auxiliary character, any concern about the inappropriate use of these exceptions being addressed through the new fragmentation rule under paragraph 4.1, which is added to the 2017 Model Tax Convention. See the anti-fragmentation rule in Table 1 below.

 

2.1. Policy choice

 

The prevention of artificial avoidance of permanent establishment status including the specific activity exception article does not come under the scope of the BEPS minimum standards. Accordingly, the contracting jurisdictions that share different views on the preparatory or auxiliary condition are free to choose whether they should adopt the 2014 or 2017 version of the MTC, with respect to paragraph 4 of Article 5. A comparison showing the different contexts of Article 5(4) is set out below:

 

2014 OECD Model Tax Convention – Article 5(4)

2017 update on OECD Model Tax Convention – Article 5(4)

4. Notwithstanding the preceding provisions of this Article, the term “permanent establishment” shall be deemed not to include:

(a) the use of facilities solely for the purpose of storage, display or delivery of goods or merchandise belonging to the enterprise;

(b) the maintenance of a stock of goods or merchandise belonging to the enterprise solely for the purpose of storage, display or delivery;

(c) the maintenance of a stock of goods or merchandise belonging to the enterprise solely for the purpose of processing by another enterprise;

(d) the maintenance of a fixed place of business solely for the purpose of purchasing goods or merchandise, or of collecting information, for the enterprise;

(e) the maintenance of a fixed place of business solely for the purpose of carrying on, for the enterprise, any other activity of a preparatory or auxiliary character;

(f) the maintenance of a fixed place of business solely for any combination of activities mentioned in sub-paragraphs (a) to (e), provided that the overall activity of the fixed place of business resulting from this combination is of a preparatory or auxiliary character.

 

4. Notwithstanding the preceding provisions of this Article, the term "permanent establishment" shall be deemed not to include: 

a) the use of facilities solely for the purpose of storage, display or delivery of goods or merchandise belonging to the enterprise; 

b) the maintenance of a stock of goods or merchandise belonging to the enterprise solely for the purpose of storage, display or delivery; 

c) the maintenance of a stock of goods or merchandise belonging to the enterprise solely for the purpose of processing by another enterprise; 

d) the maintenance of a fixed place of business solely for the purpose of purchasing goods or merchandise or of collecting information, for the enterprise; 

e) the maintenance of a fixed place of business solely for the purpose of carrying on, for the enterprise, any other activity;

f) the maintenance of a fixed place of business solely for any combination of activities mentioned in subparagraphs a) to e), 

provided that such activity or, in the case of subparagraph f), the overall activity of the fixed place of business, is of a preparatory or auxiliary character.

 

4.1 Paragraph 4 shall not apply to a fixed place of business that is used or maintained by an enterprise if the same enterprise or a closely related enterprise carries on business activities at the same place or at another place in the same Contracting State and

a) that place or other place constitutes a permanent establishment for the enterprise or the closely related enterprise under the provisions of this Article, or

b) the overall activity resulting from the combination of the activities carried on by the two enterprises at the same place, or by the same enterprise or closely related enterprises at the two places, is not of a preparatory or auxiliary character,

provided that the business activities carried on by the two enterprises at the same place, or by the same enterprise or closely related enterprises at the two places, constitute complementary functions that are part of a cohesive business operation.

 

 

2.2. The anti-fragmentation rule

 

Paragraph 4.1 of Article 5 of the 2017 version of the Model Tax Convention has incorporated a new anti-fragmentation rule, which, as provided under page 39 of the Final Report, is aimed to restrict the scope of Article 5(4) to activities having a "preparatory and auxiliary" character because, in the absence of that rule, it would be relatively easy to use closely connected enterprises in order to segregate activities which, when taken together, go beyond that threshold. Paragraph 4.1 of Article 5 applies to two types of cases, as set out below: 

 

  • First, it applies where the non-resident has a PE in the source country, whether the non-resident directly sets up the PE or it uses closely related entities to set up the PE in the source country. The tax authority in the source country needs to determine whether the activities of the non-resident enterprises give rise to one or more PE's in the country under Article 5(4.1). The profits attributed to the PEs and subject to source taxation are the profits derived from the combined activities constituting complementary functions that are part of a cohesive business operation, considering the profits each of them would have derived under the arm's length principle.
  • Second, it applies where the non-resident enterprise has no pre-existing PE in the source country but the combined activities by the non-resident and closely related non-resident enterprises result in a cohesive business operation that is not merely preparatory or auxiliary in nature. In such a case, a determination will need to be made as to whether the activities of the enterprises give rise to one or more PEs in the source country under Article 5(4.1). The profits attributable to each PE so arising are those that would have been derived from the profits made by each activity of the cohesive business operation as carried on by the PE under the PE using arm's length principle.

 

3. Article 13 of the Multilateral Instrument (the MLI)

 

Article 13(1) of the MLI provides three options that a contracting jurisdiction may choose to apply Option A under Article 13(2), or Option B under Article 13(3), or neither Option. Article 13(4) of the MLI replicates Article 5(4) and Article 5(4.1) of the Model Tax Convention, which specifically closes gaps that existed with respect to the avoidance of PE status.

 

Article 13 of the MLI, which deals with the artificial avoidance of permanent establishment status through the specific activity exemption, replicates the contexts of the Article 5 of the 2014 MTC and 2017 MTC.

 

Article 13(1) provides that “a Party may choose to apply paragraph 2 (Option A) or paragraph 3 (Option B) or to apply neither Option.”

 

Article 13(2) corresponds to Article 5(4) of the 2017 Model Tax Convention while Article 13(3) corresponds to Article 5(4) of the 2014 Model Tax Convention, as set out below:

 

Table 2 – Corresponding paragraphs of the specific activity exception article and the anti-fragmentation rule between the MLI and the two MTC’s

MLI

2017 Model Tax Convention (per Table 1)

MLI

2014 Model Tax Convention (per Table 1)

Article 13

Article 5

Article 13

Article 5

(2)(a)

4(a) to (d)

(3)(a)

4(a) to (d)

(2)(b)

4(e)

(3)(b)

4(e)

(2)(c)

4(f)

(3)(c)

4(f)

(4)

4.1

N/A

N/A

 

4. Legal Structure of Article 13

 

The legal structure of Article 13 of the MLI shows the logic how different provisions are related to one another. See Table 3 below:

 

 

Article 13(1)

Opt-in provision – anti-fragmentation rule

Option A

Option B

Neither Option A nor Option B

Operative clause

Article 13(2)

Article 13(3)

 

Article 13(4)

Compatibility clause

Article 13(5);

(a) Paragraph 2 [Option A] or 3 [Option B] shall apply in place of the relevant parts of provisions of a Covered Tax Agreement that list specific activities that are deemed not to constitute a permanent establishment even if the activity is carried on through a fixed place of business (or provisions of a Covered Tax Agreement that operate in a comparable manner).

 

Article 13(5);

(b) Paragraph 4 shall apply to provisions of a CTA (as they may be modified by paragraph 2 or 3) that list specific activities that are deemed not to constitute a PE even if the activity is carried on through a fixed place of business (or provisions of a Covered Tax Agreement that operate in a comparable manner).

Reservation

 

Article 13(6)(b);

Reserve right for article 13(2) not to apply to its CTAs

 

 

Article 13(6)(c);

Reserve right for article 13(4) not to apply to the CTAs

Notification clause

Article 13(7);

A Party choosing an Option under Article 13(1) gives notification of choice of Option, including list of CTAs containing a provision described under paragraph 5(a), as well as article and paragraph number of such provision.

An Option shall apply with respect to a provision of a Covered Tax Agreement only where all Contracting Jurisdictions have chosen to apply the same Option and have made such a notification with respect to that provision.

Article 13(8);

A Party making no reservation under (6)(a) or (6)(c), and not choosing to apply Article 13(1) give notification whether each CTA contains provision described under paragraph 5(a), article and paragraph number of such provision.

Paragraph 4 shall apply with respect to a provision of a CTA only where all Contracting Jurisdictions have made a notification with respect to that provision under this paragraph or paragraph 7.

 

4.1. Compatibility clause of Article 13

  • Paragraph 5(a) of Article 13 modify the application of paragraph 2 [Option A] or 3 [Option B] to the CTAs respectively, subject to any reservations made under Article 13(6)(b).
  • Paragraph 5(b) of Article 13 modifies the application of paragraph 4 to the CTAs, subject to any reservations made under Article 13(6)(c).

 

4.2. Reservations

  • Article 13(6)(a) provides that a Party may reserve the right for the entire Article 13 not to apply to its CTAs.
  • Article 13(6)(b) provides that a Party may reserve its right for paragraph 2 [Option A] not to apply to its Covered Tax Agreements that explicitly state that a list of specific activities shall be deemed not to constitute a permanent establishment only if each of the activities is of a preparatory or auxiliary character;
  • Article 13(6)(c) provides that a Party may reserve the right for paragraph 4 not to apply to its Covered Tax Agreements

 

4.3. Notification

 

The notification clauses in the MLI serve two purposes: 

  • giving reservation for an article or a provision of an article not to apply to the CTAs, and
  • giving legal relevance to the opt-in provisions (option chosen).

 

 

 

 

5.  Application of Article 13 to CTAs - Country Survey  

  • See section IV of the published article [read].

 

 


[1] See the Instrument of Ratification, Acceptance or Approval that Australia deposited with the OECD Depositary on 26th Sept 2018, http://www.oecd.org/tax/treaties/beps-mli-position-australia-instrument-deposit.pdf.

 

 

 

 

 

Article 14 - Splitting Up of Contracts

 

Article 5(3) of the Model Tax Convention, which is one of the exceptions to the PE status under Article 5(1), provides that "A building site or construction or installation project constitutes a permanent establishment only if it lasts more than twelve months."

 

The 12-month threshold has given rise to abuse because enterprises can divide the contracts up into several parts, each covering a period less than 12-month and attributing to a different company, which is owned by the same person. In this regard, Article 14(1) of the MLI is aimed to close the loophole, as set out below:

 

1. For the sole purpose of determining whether the period (or periods) referred to in a provision of a Covered Tax Agreement that stipulates a period (or periods) of time after which specific projects or activities shall constitute a permanent establishment has been exceeded:

a) where an enterprise of a Contracting Jurisdiction carries on activities in the other Contracting Jurisdiction at a place that constitutes a building site, construction project, installation project or other specific project identified in the relevant provision of the Covered Tax Agreement, or carries on supervisory or consultancy activities in connection with such a place, in the case of a provision of a Covered Tax Agreement that refers to such activities, and these activities are carried on during one or more periods of time that, in the aggregate, exceed 30 days without exceeding the period or periods referred to in the relevant provision of the Covered Tax Agreement; and

b) where connected activities are carried on in that other Contracting Jurisdiction at (or, where the relevant provision of the Covered Tax Agreement applies to supervisory or consultancy activities, in connection with) the same building site, construction or installation project, or other place identified in the relevant provision of the Covered Tax Agreement during different periods of time, each exceeding 30 days, by one or more enterprises closely related to the first-mentioned enterprise,

these different periods of time shall be added to the aggregate period of time during which the first-mentioned enterprise has carried on activities at that building site, construction or installation project, or other place identified in the relevant provision of the Covered Tax Agreement.

 

 

 

 

Article 15 - Definition of a Person Closely Related to an Enterprise

 

1. For the purposes of the provisions of a Covered Tax Agreement that are modified by paragraph 2 of Article 12 (Artificial Avoidance of Permanent Establishment Status through Commissionnaire Arrangements and Similar Strategies), paragraph 4 of Article 13 (Artificial Avoidance of Permanent Establishment Status through the Specific Activity Exemptions), or paragraph 1 of Article 14 (Splitting-up of Contracts), a person is closely related to an enterprise if, based on all the relevant facts and circumstances, one has control of the other or both are under the control of the same persons or enterprises.  In any case, a person shall be considered to be closely related to an enterprise if one possesses directly or indirectly more than 50 percent of the beneficial interest in the other (or, in the case of a company, more than 50 percent of the aggregate vote and value of the company's shares or of the beneficial equity interest in the company) or if another person possesses directly or indirectly more than 50 percent of the beneficial interest (or, in the case of a company, more than 50 percent of the aggregate vote and value of the company's shares or of the beneficial equity interest in the company) in the person and the enterprise.

 

Concluding Comments

 

(a) Allocation of right to impose taxes between jurisdictions

 

The residence jurisdiction that imposes tax on worldwide income is subject to the exclusion by the source jurisdiction, in which income is derived by the P.E. set up in the source jurisdiction by an enterprise of the residence jurisdiction. The source jurisdiction is in turn subject to the specific exceptions of the source jurisdiction, by way of which the right to impose taxes is allocated back to the residence jurisdiction.

 

See the pictorial presentation showing how the taxing rights are allocated between residence jurisdiction and the source jurisdiction: [read].

 

(b) Impact of action 7 final report on the allocation of residence and source rights

 

Action 7 of the 2015 Final Report has led to the modificaiton of the Model Tax Convention and the inclusion of Articles of 12 to 15 in the MLI. Articles 12 to 15 of the MLI incorporate the contexts from the corresponding Articles of the 2017 Model Tax Convention, which were updated on the recommendations made in the 2015 Final Report under Action 7 of the OECD BEPS package - Permanent Establishment Status.  Set out below is the analysis of the impact of the modifications on the residence and the source rights.

 

2017 update on Model Tax Convention

the Multilateral Instrument

Impact on residence and source jurisdictions? 

Article 5(3) – building site or installation project lasting for less than 12 months in source contracting state

Article 14 – Splitting-up contracts to avoid the 12-month threshold not allowed

Residence jurisdiction has the right to tax, subject to split-contract exception. In split-up contract cases, the right to tax is allocated to the source jurisdiction.

Article 5(4) – Specific activity exceptions

Article 13(2) replicates Article 5(4).

Residence jurisdiction has the taxing right under specific activity exceptions. However, the scope of specific activity exception is narrowed to cope with the e-commerce challenges as a result of the Action 7 final report. Consequently, the source right is expanded.

Article 5(4.1) – Exempted activities carried on by closely related enterprises constitute P.E.

Article 13(4) replicates Article 5(4.1).

Source jurisdiction is allocated the right to tax the income derived from activities carried on by closely related enterprises.

Article 5(5) – If a person plays a principal role leading to contract conclusion, the enterprise is deemed to have a P.E. 

Article 12(1) replicates Article 5(5).

The right to tax is allocated to the source jurisdiction. Source right expanded

Article 5(6) – Independent agent

Article 12(2) replicates Article 5(6).

Source jurisdiction is allocated with more taxing rights.

Article 5(8) – Defining closely related enterprise

Article 15(1) replicates Article 5(8).

 

 

Paragraph 3 of Article 5 (duration of construction activities and installation projects), paragraph 4 of Article 5 (specific activity exceptions), paragraph 5 of Article 5 (commissionaire arrangements) and paragraph 6 of Article 5 (independent agent) of the 2017 Model Tax Convention, taken together, provide the exceptions to the PE status under paragraph 1 and 2 of Article 5. The governments of the countries around the globe have realized that the scope of those exceptions must be changed in response to the challenge of the digital economy. Therefore, the aforesaid paragraphs have been modified with a view to preventing the abuse of permanent establishment article of the 2014 Model Tax Convention, which had been used as references for negotiating and concluding tax treaties before Action 7 of the BEPS package came into operation.


 

 

BEPS Cases - tax avoidance and less than single taxation by treaty abuse

 

  • Google to pay $1 billion in France to settle fiscal fraud probe [read]
  • How Google France took advantage of gaps in tax treaties between France and Ireland [read]
  • How Apple Company has been engaged in tax avoidance globally [read-Chinese version]