Anti-Abuse Rules in International Tax Law and their Interactions

1. Introduction

Over the past few decades, geographic boundaries for companies have faded. Building complex organizations and supply chains by integrating technologies, data, and sourcing from multiple countries have become a common practice. Digitalization, globalization, and increased mobility have allowed businesses to quickly scale up and enter new markets. It has also led to the centralization and automation of many functions and processes reshaping the local footprint of multinationals.

S. 172These developments have exposed vulnerabilities in the international tax framework built upon a “brick-and-mortar” principle. Aside from genuine business-driven planning, some exploited the gaps to avoid taxation of business profits in the source states by deliberately staying below the permanent establishment (PE) threshold using artificial arrangements. In response to this, the Organisation for Economic Co-operation and Development (OECD) introduced the Base Erosion and Profit Shifting Project (BEPS) Action 7 targeting the artificial avoidance of a PE status. This action called for a review of the definition of a PE included in the tax treaties to prevent the use of various abusive tax strateg...