handbook-tb

Adolfo Martín Jimenézmore jurisdictions, together with the increased mobility of employeesand assets around the world, have increased the attendant risk of havingPEs in different jurisdictions. For taxpayers, therefore, the need to planfor contingencies and manage PE risks is critical, as the aspiration toreduce their overall tax exposure in different jurisdictions, among otherthings, by avoiding having a PE (as long as this cannot be labelled artificial)is legitimate. For multinational groups, the current state of uncertaintywith regard to PEs is not satisfactory: taxpayers often prefer topay something rather than be subject to the uncertainty of arbitrary taxclaims, double or multiple taxation, and lengthy disputes.In recent years, the PE concept has provided tax administrationswith a powerful tool to increase the tax base within their jurisdiction,especially when transfer pricing policies of multinationals cannotbe challenged under national law or the OECD standard, as representedby the OECD Transfer Pricing Guidelines for MultinationalEnterprises and Tax Administrations 23 (OECD Transfer PricingGuidelines). A PE audit, if successful, may bring more revenue to thesource country than transfer pricing audits of domestic subsidiaries ofa group. The PE concept has even been used in the context of transferpricing audits as a threat to increase attribution of profits to domesticsubsidiaries. In this respect, some high-profile cases (for example, inSpain 24 ) have probably increased the appetite of tax administrationsto enter into PE audits, especially in a context where it is widely known23OECD, Transfer Pricing Guidelines for Multinational Enterprises andTax Administrations (Paris: OECD, 2010).24See the following cases: Borax (Judgment of the Audiencia Nacional of9 February 2011, rec. n. 80/2008, confirmed by the judgement of the SupremeCourt of 18 June 2014, rec. 1933/2011); Roche (Judgment of the AudienciaNational of 24 January 2008, rec. 894/2004, confirmed but with a differentreasoning by the Judgment of the Supreme Court of 12 January 2012, rec.1626/2008); Dell (Decision by the Central Administrative Court (TEAC) 15May 2012, RG 2107/2007); and Honda (Decision by the Central AdministrativeCourt (TEAC) 20 December 2012, RG 221/2009). For a commentary onthese cases, see N. Carmona Férnandez, “The Concept of Permanent Establishmentin the Courts: Operating Structures Utilizing Commission Subsidiaries,”(2013) Bulletin for International Taxation (online version). All thesecourt decisions seem to deviate from the conventional OECD approach ininterpreting Article 5 of the OECD Model Convention.340