handbook-tb

Adolfo Martín JimenézPublic Discussion Draft on BEPS Action 7, but it is likewise stressedthat no substantial changes to the current rules seem to be neededeven if additions and clarifications may be useful. Notwithstandingthe latter, no more clarifications are included in the OECD PublicDiscussion Draft on BEPS Action 7, as the work on attribution of profitsis closely linked with other Actions in the OECD Action Plan onBEPS, namely: Action 9 on transfer pricing aspects of risks and capitaland, more generally, Action 4 on the limitation of interest deductionsand other financial payments and Action 8 on intangibles. Until thiswork is further developed, it is acknowledged that no other conclusionson attribution of profits to PEs can be reached. In fact, it canbe argued that the problem of artificial avoidance of PE status has alot to do not only with the concept of PE in Article 5 of the OECDModel Convention, but also with the system of attribution of profitsto PEs as designed by the different versions of Article 7 of the OECDModel Convention (pre- and post-2010), and with Article 9 of theOECD Model Convention. Judging by the OECD Public DiscussionDraft on BEPS Action 7, it would seem, however, that no major revampof the current system is expected; it remains to be seen whether majorchanges are advanced in the context of other Actions.It appears, therefore, that major changes cannot be expected fromAction 7 as it is limited to extreme cases that are of common concern.Therefore, States that want to tax economic activity carried on in theirterritory may want to consider options other than (or complementaryto) those proposed in the context of Action 7. However, before studyingthose options, it is necessary to fully understand what “artificial avoidanceof PE” may mean and the policy implications of PE rules. This isvery relevant for countries, and especially developing countries, to helpthem consider whether they want to adhere to the PE concept in theOECD Model Convention (as slightly modified by Action 7 in the OECDAction Plan on BEPS) or the United Nations Model Convention, or wantto change it and complement it with other options to make sure that theyare able to tax activities carried out in the State of source.2.3 Policy issues behind Action 7: How can artificialavoidance of PEs be defined?As mentioned above, Action 7 has several inherent weaknesses:336