handbook-tb

Adolfo Martín Jimenézwithin the company). 76 Constant travelling by these individualsinto and out of the source country, as long as that does notcreate a PE, has only the effect of removing more profit fromthat jurisdiction if “services” are provided to resident companies.This approach tends to ignore that a company is muchmore than “significant people” and that all parts of the firm,especially employees but also other associated companies andsubcontractors, contribute to profits. 77 Combined with the PEthresholds and the freedom of contract to allocate risks betweenassociated companies, the final result is that it is relatively easyto remove profits from the country of sale or manufacture of aproduct (through contract-manufacture agreements combinedwith fragmentation and/or commissionaire agreements if thecountry is also a relevant market) provided significant peopleare in the right place. 78‣ ¾ For tax administrations, the OECD reports (together with thefunctional analysis in the OECD Transfer Pricing Guidelines),by emphasizing risks and significant people functions, offeran important tool to challenge traditional fragmentation andcommissionaire-like agreements. 79 Some tax administrationshave established that where functions and risks are de facto,not de jure, in a source country, a PE may exist. 80 Relaxation76See R. Vann, “Taxing International Business Income: Hard-BoiledWonderland and the End of the World,” supra note 12, 326.77Ibid., 330-332. Contrary to the usual assumption, according to thisscholar the profits from services provided by significant people should belocated where they are used (given that in modern corporations it is increasinglydifficult to know the place of provision of services). The OECD ModelConvention, however, does not allow this.78Ibid., at 337.79R. Collier, “BEPS Action Plan, Action 7: Preventing the ArtificialAvoidance of PE Status,” supra note 11, 640.80See HM Revenue & Customs (United Kingdom), “Transfer Pricing:Transactions and Structures: business structures: marketing and distribution— commissionaires: practicalities,” supra note 25. The following excerptillustrates the point: “The principal, through the UK commissionaire, is participatingin the selling activity in the UK; the selling activity is the source ofthe profits of the PE. In the example, the profits included in the accounts forthe principal are derived from the inventory and debtor functions and risks364