Tax treaties

Release of discussion draft on Action 7 (Prevent the Artificial Avoidance of PE Status) of the BEPS Action Plan


31/10/2014 - Public comments are invited on a discussion draft (en español) which includes the preliminary results of the work carried on with respect to issues related to the artificial avoidance of PE status and includes proposals for changes to the definition of permanent establishment found in the OECD Model Tax Convention.

The OECD Action Plan on Base Erosion and Profit Shiftingpublished in July 2013, identifies 15 actions to address BEPS in a comprehensive manner and sets deadlines to implement these actions.

The Action Plan stresses the need to update the treaty definition of permanent establishment (PE) in order to prevent abuses of that threshold. It notes that the interpretation of the treaty rules on agency-PE allows contracts for the sale of goods belonging to a foreign enterprise to be negotiated and concluded in a country by the sales force of a local subsidiary of that foreign enterprise without the profits from these sales being taxable to the same extent as they would be if the sales were made by a distributor, which has led enterprises to replace arrangements under which the local subsidiary traditionally acted as a distributor by “commissionnaire arrangements” with a resulting shift of profits out of the country where the sales take place without a substantive change in the functions performed in that country. The Action Plan also notes that multinationals may artificially fragment their operations among multiple group entities to qualify for the exceptions to PE status for preparatory and auxiliary activities.

Action 7 of the Action Plan indicates the need to address these issues:

Action 7Prevent the Artificial Avoidance of PE Status

Develop changes to the definition of PE to prevent the artificial avoidance of PE status in relation to BEPS, including through the use of commissionnaire arrangements and the specific activity exemptions. Work on these issues will also address related profit attribution issues.

Further, the Report Addressing the Tax Challenges of the Digital Economy has identified issues in the digital economy that need to be taken into account in the course of the work on Action 7, namely ensuring that core activities cannot inappropriately benefit from the exception from permanent establishment (PE) status and that artificial arrangements relating to sales of goods and services cannot be used to avoid PE status.


As part of the transparent and inclusive consultation process mandated by the Action Plan, the Committee on Fiscal Affairs (CFA) invites interested parties to send comments on this discussion draft, which includes the preliminary results of the work carried on with respect to issues related to the artificial avoidance of PE status and includes proposals for changes to the definition of permanent establishment found in the OECD Model Tax Convention.

The views and proposals included in this discussion draft do not represent the consensus views of the CFA or its subsidiary bodies but are intended to provide stakeholders with substantive proposals for analysis and comment.

Comments should be sent by 9 January 2015 at the latest (no extension will be granted) and should be sent by email to [email protected] in Word format (in order to facilitate their distribution to government officials). They should be addressed to Marlies de Ruiter, Head, Tax Treaties, Transfer Pricing and Financial Transactions Division, OECD/CTPA

Please note that all comments received regarding this consultation draft will be made publicly available. Comments submitted in the name of a collective “grouping” or “coalition”, or by any person submitting comments on behalf of another person or group of persons, should identify all enterprises or individuals who are members of that collective, or the person(s) on whose behalf the commentator(s) are acting.


Public consultation meeting (Update)

Persons and organisations who will send comments on this consultation document are invited to indicate whether they wish to speak in support of their comments at a public consultation meeting on Action 7 that is scheduled to be held in Paris at the OECD Conference Centre on 21 January 2015. Persons selected as speakers will be informed by email by 16 January at the latest.

This consultation meeting will be open to the public and the press.

Due to space limitations, priority will be given to persons and organisations who register first (we reserve the right to limit the number of participants from the same organisations).

Persons wishing to attend this public consultation meeting are asked to register on line.
Requests for registration should be made not later than 9 January 2015, after which date further requests will not be accepted.
Confirmation of participation, including venue access details, will be sent by email to participants by 16 January at the latest.

This meeting will also be broadcast live on the internet and can be accessed on line. No advance registration will be required for this internet access.


Other Languages

French and Spanish translations of this document will be available shortly.  When complete, links to these versions will be made available here.