handbook-tb

Adolfo Martín Jimenéz2. Action 7 in the OECD Action Plan on BEPS: Preventthe artificial avoidance of PE status — context and scope2.1 IntroductionThe present section describes the scope of Action 7 in the OECDAction Plan on BEPS on preventing the artificial avoidance of PE status,including reference to the OECD Public Discussion Draft 6 releasedby the OECD on this subject, and explains the policy and practicalproblems behind it. First, reference is made to the OECD documentsin which Action 7 is considered. Second, some observations are addedon the policy difficulties inherent in this Action. Last, it is shown thatthere is a connection between Action 7 and the current problems facedby taxpayers and tax administrations (including those in developingcountries) regarding PEs. These are very intensively linked with thepolicy issues and problems dealt within the Action. The aim of thepresent section is to explain that the scope of Action 7 is more complexthan may be thought because it touches on core issues in internationaltaxation; it also makes developing countries aware of the difficulties oftrying to rely on Action 7 to fight avoidance of taxation in source countriesor to achieve a closer alignment of economic activity and taxation.2.2 The scope of Action 7 in the OECD Action Plan onBEPS and in the relevant OECD Public Discussion DraftAction 7 should be read in the context of the main policy goal of theOECD Action Plan on BEPS:No or low taxation is not per se a cause of concern, but itbecomes so when it is associated with practices that artificiallysegregate taxable income from the activities that generate it. 7Therefore, Action 7 is expected to deal with the disconnectbetween business activity and taxation in a country produced by6OECD, Public Discussion Draft, BEPS Action 7: Preventing the ArtificialAvoidance of PE Status (Paris: OECD, 2014), available at http://www.oecd.org/ctp/treaties/action-7-pe-status-public-discussion-draft.pdf (OECD PublicDiscussion Draft on BEPS Action 7).7OECD, Action Plan on Base Erosion and Profit Shifting, supra note 1, at 10.328