Base Erosion and Profit Shifting (BEPS)

I. S. 53Introduction

The definition of permanent establishment (PE) laid down in article 5 of the OECD Model Convention (OECD Model) is one of the key rules in tax treaty law, as it is of material importance for the allocation of taxing rights with regard to foreign business activities (so-called PE nexus).Therefore, PE status has, throughout the years, been the subject of discussions not only at the OECD and UN level, but also in literature.Consequently, the PE concept plays also a significant role in light of the BEPS Action Plan dealing with issues related to the PE concept in two Actions. Under the heading “Preventing the Artificial Avoidance of PE Status”, BEPS Action 7 points out the need to update the treaty definition of PE in order to prevent abuses of that threshold. In addition, BEPS Action 1 is also concerned with PE status, focussing on BEPS issues especially related to the digital economy by stressing the fact that companies are able to have a significant business presence in the economy of a foreign country without being liable to taxation due to the lack of nexus.

Following up on the BEPS Action Plan, the Action 7 Discussion Draft put forth a series of possible changes to ...