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OECD publishes revised discussion draft on avoidance of permanent establishments
As part of the ongoing work of the OECD to combat base erosion and profit shifting (BEPS) a revised discussion draft on the artificial avoidance of permanent establishments (PE) has been published. Taxand Ireland provides an overview of the details.
The revised draft focuses on arrangements whereby the activities of an intermediary exercised in a country are intended to result in the regular conclusion of contracts being performed by a foreign enterprise; in such circumstances the OECD believes that the enterprise should be considered to have a sufficient taxable presence in that country unless the intermediary is performing these activities in the course of an independent business. It was agreed to include additional commentary and guidance on these amendments.
It is important to highlight that it was agreed that issues relating to low risk distributor agreements will not be dealt with under this Action and will be dealt with under Action 9, 'Risks and Capital'.
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Despite strong objections to the proposal, an anti-fragmentation rule is contained in the revised draft in order to address BEPS concerns on the use of subsidiaries to fragment related activities so as to maintain a preparatory/auxiliary character and avoid a PE.