handbook-tb

Preventing avoidance of permanent establishment status‣ ¾ The controversial 2002-2003 revision 61 to the Commentary onArticle 5 of the OECD Model Convention did not add much withregard to the problem of (artificial) avoidance of PEs even if itdid represent a (limited) move in favour of more source-countrytaxation. Rather, it could be said the changes limited even furtherthe scope of anti-avoidance rules in the context of Article 5of the OECD Model Convention with regard to the problems ofcommissionaires and fragmentation and, thereby, the possibilityfor source countries to react against these structures: 62(a) Changes to Article 5 (1), 5 (3) and 5 (4)Even if a less formal interpretation and some changes in antiavoidanceintent are evident (for example, the factual disposaltest, or supervision of activities in Article 5 (3)), the basicprinciples of the PE concept remained untouched or wereeven reinforced. For instance, the geographical and commercialcoherence test was imported from Article 5 (3) to Article5 (1) of the OECD Model Convention, and the controversialexamples of the painter and the consultant or the coordinationoffice aim to illustrate how it should be applied. Moreover, thenew paragraph 27.1 63 of the Commentary on Article 5 (4) and61See OECD, Issues arising under Article 5 (Permanent Establishment) ofthe Model Tax Convention (Paris: OECD, 2002).62The Commentaries on Article 1 of the OECD Model Convention representeda dramatic shift, since it was recognized that domestic anti-abuseor anti-avoidance doctrines could be applied. As a result, the Commentarieson Article 1 and Article 5 of the OECD Model Convention are not fullyaligned in this regard. There are two different anti-avoidance standards inconnection with Article 5 and Article 1, respectively: the first only admitsan “exclusively-tax-motived standard” whereas the second picks up a “mainpurpose test.”63See paragraph 27.1 of the Commentary on Article 5 of the OECD ModelConvention, where it is provided that “Places of business are not ‘separatedorganisationally’ where they each perform in a Contracting State complementaryfunctions such as receiving and storing goods in one place, distributingthose goods through another etc. An enterprise cannot fragmenta cohesive operating business into several small operations in order to arguethat each is merely engaged in a preparatory or auxiliary activity.”357