handbook-tb

Preventing avoidance of permanent establishment statusproposal seeks to address the most aggressive forms of fragmentation,but it does not pursue a holistic view of all the presences a company orassociated companies may have in a jurisdiction and, except where itcan be maintained that a certain degree of artificiality is present, accumulationof different presences will not be the rule. The geographicalcoherence test of the PE concept is left untouched and, therefore, theeffects of the proposed paragraph 4.1 would be limited.Splitting-up of contracts for the purposes of Article 5 (3) of theOECD Model Convention or the alternative service PE provision inparagraph 42.23 of the Commentary on Article 5 of the OECD ModelConvention is also another concern of the OECD Public DiscussionDraft on BEPS Action 7. Again, two proposals have been advanced: (a) toinclude a new paragraph in Article 5 (3) of the OECD Model Conventionthat accumulates the activities in the same place of associated companiesfor the purposes of computation of the 12-month period in that Article;or (b) to add an example in the Commentary, which is linked to thetreaty General Anti-Avoidance Rule (GAAR) under Action 6 of theOECD Action Plan on BEPS, so that it captures only tax-drivensplitting-up of contracts (the rule in the first proposal would also includesplitting-up of contracts which is not tax driven). The scope of the ruleis very limited as it affects only the computation of the time period anddoes not affect fragmentation involving different places of business, thatis to say, it refers to a contract regarding one site, but not to splitting-upthat involves different sites or projects (which is dealt with only by thelimited changes to paragraph 4.1 of the Commentary on Article 5 andthe changes in Article 5 (5) of the OECD Model Convention).Insurance companies have also been the object of some considerationin the OECD Public Discussion Draft on BEPS Action 7 andtwo proposals have been made: (a) to add a new clause on insurancecompanies to Article 5 of the OECD Model Convention in line withparagraph 39 of the Commentary on Article 5 of the OECD ModelConvention and Article 5 (6) of the United Nations Model Convention;or (b) to deal with insurance companies through the more generalchanges to Article 5 (5) and (6) of the OECD Model Convention mentionedabove for commissionaires.The importance of joint consideration of these changes with thework on attribution of profits to PEs is also underlined by the OECD335