handbook-tb

Adolfo Martín Jimenézthe introduction of the term “combination of activities” didnot contribute much to eliminating the formalistic reading ofArticle 5 (4) and, certainly, did not help the effort to deal effectivelywith the fragmentation of activities in the source country.Rather, it could be interpreted as a limit to the application ofanti-avoidance rules against fragmentation: if read correctly, itmeans that activities of several taxpayers cannot be combinedand activities of the same taxpayer can be considered togetheronly if they are carried out in the same place of business andare not separated organizationally. As a matter of fact, evensome examples on business restructuring contained in the2002 OECD Report on Issues in International Taxation 64 aresupportive of limiting tax avoidance doctrines or legislation toaffect exclusively tax-motivated transactions. 65(b) Changes with regard to dependent agent PEsEven though the underlying philosophy of the dependent agentPE was explained for the first time in the above-mentioned 200264OECD, Issues in International Taxation: 2002 Reports Related to theOECD Model Tax Convention (OECD: Paris, 2002).65Ibid., at 100, where the following example was provided: “A nonresidentparent company owns a resident subsidiary that hitherto has beenengaged in selling both automobiles and spare parts. The spare parts storagefacility is now to be hived off and treated as a separate branch of theparent company. The activities of the storage facility will be limited to thestorage, relocation, and distribution of the spare parts, which will be ordered‘directly’ from the parent by the customers. Specifically, this means that:(a) the settlement of the transactions, with regard to both contracting andaccounting, is to be effected exclusively by the parent in its name and forits account; (b) ancillary activities such as settling warranty claims, installing,performing customer service, and advertising are not performed by thestorage facility; and (c) the necessary staff is provided under a lease contract,and the facility’s own staff is engaged merely in instructing and supervising.”It was concluded that in this example the source country had lost taxingrights because the new activities carried out by the branch fell squarely underArticle 5 (4). Also, it was recognized that Article 5 (4), letters a) through d),“are always exempt and are not subject to examination for whether or notthey are truly preparatory or auxiliary.” Even if this could give rise to taxplanning, it was argued that, as long as the transaction was not “exclusively”tax-motivated, the taxing rights should be allocated to the residence country.358