On International Tax
International tax is technical in nature and in high political focus.

International tax is technical in nature and in high political focus. Governments are taking decisive action to tackle tax evasion and avoidance and ensure all taxpayers pay their fair share. Central to this effort is ensuring that countries implement the internationally agreed standards for co-operation between tax authorities. OECD plays a key role.
In recent years there has been a lot of talk about OECD’s action plan and measures implemented to tackle Base Erosion and Profit Shifting (BEPS) which is a reference to tax avoidance strategies that exploit gaps and mismatches in tax rules to artificially shift profits to low or no-tax jurisdictions.
A 15 point action plan has been developed to equip governments with domestic and international instruments to address tax avoidance, ensuring that profits are taxed where economic activities generating the profits are performed and where value is created.
So, how is that going to be achieved? My focus in this article is on Action Point 7 – one of the many ways to achieve that – which contains changes to the definition of Permanent Establishment (PE) in tax treaties to prevent its artificial circumvention, e.g. via the use of commissionaire structures and the likes.
On 22 March 2018, the OECD released the report “Additional Guidance on the Attribution of Profits to Permanent Establishments” (BEPS Action 7).
This is a follow up from the OECD/G20 report on Prevention of Artificial Avoidance of Permanent Establishment Status published in October 2015. The Report recommended changes to the definition of PE in Article 5 of the OECD Model Tax Convention, which is crucial in determining whether a non-resident enterprise must pay income tax in another State. In particular, the Report recommended changes aimed at preventing the use of certain common tax avoidance strategies that have been used to circumvent the existing PE definition. The Report also mandated the development of additional guidance on how the existing rules on the attribution of profits to PEs under Article 7 would apply to PEs resulting from the changes recommended in the Report.
The additional guidance resulting from this mandate sets out high-level general principles, which countries agree are relevant and applicable in attributing profits to PEs in accordance with applicable treaty provisions. It also provides examples on the attribution of profits to certain types of PEs arising from the changes to the PE definition under BEPS Action 7.
If you are a multinational enterprise or you have clients who are multi-nationals, then it’s prudent to seek professional legal advice on tax treaty issues from a specialist tax lawyer.
Ismail Rasheed, the owner of IR Legal, is a specialist tax lawyer with 18 years’ experience.
Phone (04) 566 1155 | (09) 299 1155 | Email: office@irlegal.lawyer
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