handbook-tb

Chapter VIIPreventing avoidance of permanentestablishment statusAdolfo Martín Jimenéz*1. IntroductionAction 7: Prevent the Artificial Avoidance of PE Status (Action 7)in the Organisation for Economic Co-operation and DevelopmentAction Plan on Base Erosion and Profit Shifting 1 (OECD ActionPlan on BEPS) deals with very complex issues, from both a theoreticaland practical perspective. First, it affects one of the most relevantand complicated concepts in international taxation, the definition ofpermanent establishment (PE), as well as Article 5 of both the UnitedNations Model Double Taxation Convention between Developed andDeveloping Countries (United Nations Model Convention) 2 and theOECD Model Tax Convention on Income and on Capital 3 (OECDModel Convention). Second, it impacts the attribution of profits to PEsunder Article 7 (Business profits) of the United Nations and OECDModel Conventions, which is another intricate and controversial issue.Third, this topic has a direct connection to transfer pricing issues andinternational taxation of groups of companies. Fourth, Action 7 has avery close connection to the division of the tax base between residenceand source countries and the role of the PE as a threshold for sourcetaxation. From a practical perspective, having a PE in a jurisdiction is*Professor of Tax Law, European Commission Jean Monnet Chair onEuropean Union Tax Law, University of Cádiz, Spain.1Organisation for Economic Co-operation and Development, ActionPlan on Base Erosion and Profit Shifting (Paris: OECD, 2013), available athttp://www.oecd.org/ctp/BEPSActionPlan.pdf.2United Nations, Department of Economic and Social Affairs, UnitedNations Model Double Taxation Convention between Developed and DevelopingCountries (New York: United Nations, 2011).3OECD, Model Tax Convention on Income and on Capital (Paris:OECD, 2014).325