handbook-tb

Adolfo Martín Jimenézcompletely new rules. They cannot be used, therefore, to turn Article 5of the United Nations and OECD Model Conventions into a completelynew and different rule. If GAARs, or too aggressive interpretationsthereof, are used to overrule the main principles and more conventionalinterpretation of the PE concept, the position of a country may sufferfrom the perspective of legal certainty and attraction of investment.5.4 Diverted profits taxesThe United Kingdom has worked on the introduction of a 25 per centtax on structures or arrangements that avoid having a PE within itsborders (the diverted profits tax), having effect on 1 April 2015. 126In its PE variant, the diverted profits tax will apply where goods aresold or services are provided in the United Kingdom by a non-UnitedKingdom company, if it is reasonable to assume that the structure isorganized in order to avoid having a PE in the United Kingdom. Smallor medium-size companies will not be subject to the tax, and an exemptionwill be provided for supplies of goods and services not exceeding10 million pounds sterling for a 12-month accounting period.This tax is, in fact, a substitute for GAARs in the UnitedKingdom or the reduction of PE thresholds, and does not seem easy toapply or to be effective. With as yet no experience on how it will function,and in view of how complex the tax and its application may be,other countries, especially developing countries, should probably notfollow this path for the time being, but could monitor its development.Even if the tax seems to be designed not to formally breach the treatyobligations of the United Kingdom, it is a non-conventional move thatdeparts from the consensus on Action 7. In fact, this unilateral move,if followed by other countries, may render Action 7 irrelevant. It isalso likely that the diverted profits tax will ultimately be challenged,either because it breaches tax treaties or EU law, or because it is noteasy to apply.126See https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/385741/Diverted_Profits_Tax.pdf.A somewhat similar baseprotectingsurtax was also proposed in B. Wells and C. Lowell, “Tax BaseErosion and Homeless Income: Collection at Source is the Linchpin,” (2011)Vol. 65, Tax Law Review, 604 ff.400