(May 15, 2015) 

On May 15, 2015 the OECD published a revised Public Discussion Draft on Action 7 of the BEPS Action Plan (Prevent the Artificial Avoidance of PE Status). The Discussion Draft is titled: “Revised discussion draft – BEPS ACTION 7: PREVENTING THE ARTIFICIAL AVOIDANCE OF PE STATUS”.

With respect to Action 7 the BEPS Action Plan states a.o.:

“The definition of permanent establishment (PE) must be updated to prevent abuses. In many countries, the interpretation of the treaty rules on agency-PE allows contracts for the sale of goods belonging to a foreign enterprise to be negotiated and concluded in a country by the sales force of a local subsidiary of that foreign enterprise without the profits from these sales being taxable to the same extent as they would be if the sales were made by a distributor. In many cases, this has led enterprises to replace arrangements under which the local subsidiary traditionally acted as a distributor by “commissionnaire arrangements” with a resulting shift of profits out of the country where the sales take place without a substantive change in the functions performed in that country. Similarly, MNEs may artificially fragment their operations among multiple group entities to qualify for the exceptions to PE status for preparatory and ancillary activities.

ACTION 7 

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 commissionaire arrangements and the specific activity exemptions. Work on these issues will also address related profit attribution issues.”

As stated the Discussion Draft issued on May 15, 2015 is a revised Discussion Draft. On October 31, 2014 the OECD released an initial Discussion Draft on Action 7 of the BEPS Action Plan. The Comments the OECD received on this Discussion Draft were released on January 12, 2015. Subsequently a public consultation meeting was held on January 21, 2015.

According to the press release that accompanies the release of the revised Discussion Draft, the revised Discussion Draft reflects the proposals that resulted from the aforementioned work on which comments are now invited. According to the press release comments should be sent in Word format by e-mail by June 12, 2015 at the latest. The press release furthermore states that NO public consultation meeting will be held regarding the proposals included in the revised Discussion Draft.

Click here to be forwarded to the revised Discussion Draft on Action 7 as published on the website of the OECD, which will open in a new window.

Click here to be forwarded to the Discussion Draft on Action 7, which was released on October 31, 2014, as published on the website of the OECD, which will open in a new window.

Click here to be forwarded to “COMMENTS RECEIVED ON PUBLIC DISCUSSION DRAFT BEPS ACTION 7: PREVENT THE ARTIFICIAL AVOIDANCE OF PE STATUS” as published on the website of the OECD on January 12, 2015, which will open in a new window.

If you are interested in reviewing the Videos On Demand that are available of the public consultation meeting that was held on January 21, 2015, you can find links to those in our sub-section BEPS LIBRARY.

Our BEPS Library is without a doubt the most efficient way to locate a BEPS (related) document. The Action Plan, Discussion Drafts, Comments published and more, all of them are just 1 mouse-click away. Are you a professional working in international taxation? Then you should definitely bookmark our BEPs Library to your list of FAVORITES.

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