The OECD-Model-Convention and its Update 2014

I. S. 242Introduction

The permanent establishment (PE) standard in article 5 of the OECD Model Convention (OECD Model) is one of the key rules in tax treaties, as it is of high importance for the allocation of taxing rights for cross-border business activities. While the wording of the article has remained nearly unchanged for the last 50 years, the understanding of the treaty terms has evolved over time. In particular, in the last decade there has been a tendency to broaden the scope of article 5. On 19 October 2012, the OECD Committee on Fiscal Affairs released a revised discussion draft for public comment on the definition of “permanent establishment” under the OECD Model (Revised PE Discussion Draft). Originally, it was intended to include these proposals in a revised Commentary in the 2014 update to the OECD Model. In view of the BEPS Action Plan, which raises concerns on the permanent establishment standard as such, the OECD decided not to implement the proposals for an updated Commentary on article 5 in the 2014 update.

The BEPS Action Plan released in July 2013 mentions the permanent establishment issue in two Actions. Action 1 addresses the tax challenges of the digital economy. I...