OECD - Topics
TAX ACADEMY BEPS ACTION 7: PREVENTING THE ARTIFICIAL AVOIDANCE OF PE STATUS (15 May 2015 – 12 June 2015) ACTION 7 (BEPS) - Prevent the Artificial Avoidance of PE Status Develop changes to the definition of PE to prevent the artificial avoidance of PE status in relation to BEPS, including through the use of commissionnaire arrangements and the specific activity exemptions. Work on these issues will also address related profit attribution issues. Introduction A. Artificial avoidance of PE status through commissionnaire arrangements and similar strategies B. Artificial avoidance of PE status through the specific activity exemptions 1. The exceptions are not restricted to preparatory or auxiliary activities 2. The word “delivery” in subparagraphs a) and b) of paragraph 3. The exception for purchasing offices 4. Fragmentation of activities between related parties C. Splitting-up of contracts D. Insurance E. Profit attribution to PEs and interaction with action points on transfer pricing Artificial avoidance of PE status through commissionnaire arrangements and similar strategies
PROPOSAL 1: CHANGES TO PARAGRAPHS 5 AND 6 OF ARTICLE 5 Replace paragraphs 5 and 6 of Article 5 by the following (changes to Option B as it read in the October 2014 discussion draft appear in bold italics for additions and strikethrough for deletions): 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 negotiates the material elements of contracts, that are a) a) in the name of the enterprise, or b) 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, would not make this fixed place of business a permanent establishment under the provisions of that paragraph. ) 6) a) Paragraph 5 shall not apply where the person acting in a Contracting State on behalf of an enterprise of 1
the other Contracting State carries on business in the first-mentioned State as an independent agent acting on behalf of various persons 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 connected one enterprise or associated enterprises, that person shall not be considered to be an independent agent within the meaning of this paragraph with respect to any such enterprise. b) b) For the purpose of this Article, a person shall be connected to an enterprise if one possesses at least 50 per cent of the beneficial interests in the other (or, in the case of a company, at least 50 per cent 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 at least 50 per cent of the beneficial interest (or, in the case of a company, at least 50 per cent of the aggregate voting power and value of the company’s shares or of the beneficial equity interest in the company) in the person and the enterprise. In any case, a person shall be considered to be connected 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.
Proposed changes to the Commentary on Article 5 ……… …… ……. 32.12 The cases to which paragraph 5 applies must be distinguished from situations where a person concludes contracts on its own behalf and, in order to perform the obligations deriving from these contracts, obtains goods or services from other enterprises. In these cases, the person is not acting “on behalf” of these other enterprises and the contracts concluded by the person are neither in the name of these enterprises nor for the transfer to third parties of the ownership or use of property that these enterprises own or have the right to use or for the provision of services by these other enterprises. Where, for example, a company acts as a distributor of products in a particular market and, in doing so, sells to customers products that it buys from an enterprise (including an associated enterprise), it is neither acting on behalf of that enterprise nor selling property that is owned by that enterprise since the property that is sold to the customers is owned by the distributor. This would still be the case if that distributor acted as a so-called “low-risk distributor” as long as the transfer of the title to property sold by that distributor passed from the enterprise to the distributor and from the distributor to the customer (regardless of how long the distributor would hold title in the product sold).
Dottor Ignazio La Candia
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