handbook-tb

Adolfo Martín Jimenézwhere it could claim its right to tax non-resident taxpayers. The PE wasdesigned to foster residence-country taxation and avoid source-countrytax (except where the fixed place and dependent agent thresholdswere met) and, therefore, only modifications in the PE threshold couldincrease taxing rights of the source country.3.4 (R)evolution of the PE concept: 1990s to present3.4.1 PEs reveal their limitsIn the 1990s the debate over the PE concept continued for several reasons:removal of barriers to banks and financial institutions, integrationof financial markets, technological advances, developments andsubstantial increase in the trade in services, new business models,the incremental importance of services; and not least, increased taxplanning opportunities, which were facilitated by all these factors andthe specific configuration of the PE in Article 5 of the OECD ModelConvention and the system of attribution of profits in Article 7 of theOECD Model Convention. 48 All these developments marked anotherphase in the evolution of PEs; in particular, the PE concept and attributionof profits to PEs were the object of new studies, especially afterthe arm’s length principle was developed and explained in the 1995OECD Transfer Pricing Guidelines.These changes revealed not only the limits of the PE concept,but also those of “artificial avoidance” of PEs. First, the fixed place ofbusiness under Article 5 (1) and the threshold for construction projectsin Article 5 (3) were relatively easy to avoid — in some cases notnecessarily in an artificial manner — as described below: 4948R. Vann, “Tax Treaties: The Secret Agent’s Secrets,” supra note 37, 373.49See, on this issue, A. Skaar, Permanent Establishment: Erosion of a TaxTreaty Principle, supra note 30, 109 ff.; B. Arnold, “Threshold Requirementsfor Taxing Business Profits Under Tax Treaties,” in B. Arnold, J. Sassevilleand E. Zolt, eds., The Taxation of Business Profits Under Tax Treaties (Toronto:Canadian Tax Foundation, 2004), 81-84; and J. Schaffner, How fixed isa Permanent Establishment? (Alphen aan den Rijn: Kluwer Law International,2013).352