handbook-tb

Preventing avoidance of permanent establishment statuslimited response to the invitation of the OECD should not be taken as anindication that the issue is not relevant or important. As explained below,this problem is crucial to both developed and developing countries.To date, however, the work on Action 7 has been very limited inscope, perhaps more so than could have been expected. 152.2.1 Commissionaire agreementsCommissionaire agreements are well known and for some time havebeen a matter of concern to tax authorities all over the world, and theOECD. 16 Commissionaire agreements exploit the differences betweencivil and common law regarding agency. In civil law countries there isno dependent agent PE where the subsidiary located in that countrysells the products/services of a group, acting ostensibly in its own namebut actually on behalf of a foreign company, usually located in a low-taxjurisdiction, or where it is regarded as a hybrid, to obtain low-tax treatment.These structures are based on a literal and legal interpretationof Article 5 (5) of the United Nations and OECD Model Conventions.In addition, remuneration attributed to the subsidiary acting as commissionairein high-tax countries is normally low — determined byapplying a cost-plus method with a low margin — because, ultimately,most of the relevant risks (for example, inventory, obsolescence, bad15See OECD, Public Discussion Draft, BEPS Action 7: Preventing theArtificial Avoidance of PE Status, supra note 6. The present chapter will notcomment extensively on the proposals of this draft, which is still of a provisionalnature and has not presented conclusive solutions with regard to veryrelevant issues (for example, commissionaire agreements or fragmentation).16For a recent discussion on commissionaire agreements and the problemsof Article 5, paragraphs 5-7, see B. Arnold, “Commentary on Article 5of the OECD Model Convention,” in IBFD, Global Tax Treaty Commentaries,supra note 12, at 47 ff.; N. Carmona Férnandez, “The Concept of PermanentEstablishment in the Courts: Operating Structures Utilizing CommissionSubsidiaries,” (2013) Bulletin for International Taxation (online version); L.Sheppard, “The Brave New World of the Dependent Agent PE,” (2013) Vol. 71,Tax Notes International, at 10 ff.; and B. Obuoforibo, “In the Name of Clarity:Defining a Dependent Agent Permanent Establishment,” in C. Gutiérrez andA. Perdelwitz, eds., Taxation of Business Profits in the 21st Century (Amsterdam:IBFD, 2013), 57 ff.331