This report includes changes to the definition of permanent establishment in the OECD
Model Tax Convention that will address strategies used to avoid having a taxable presence
in a country under tax treaties. These changes will ensure that where the activities
that an intermediary exercises in a country are intended to result in the regular
conclusion of contracts to be performed by a foreign enterprise, that enterprise will
be considered to have a taxable presence in that country unless the intermediary is
performing these activities in the course of an independent business. The changes
will also restrict the application of a number of exceptions to the definition of
permanent establishment to activities that are preparatory or auxiliary nature and
will ensure that it is not possible to take advantage of these exceptions by the fragmentation
of a cohesive operating business into several small operations; they will also address
situations where the exception applicable to construction sites is circumvented through
the splitting-up contracts between closely related enterprises.
Base Erosion and Profit Shifting (BEPS) refers to tax planning strategies that exploit gaps and mismatches in tax rules to artificially shift profits to low or no-tax locations where there is little or no economic activity, resulting in little or no overall corporate tax being paid.