The discussion draft for BEPS action 7 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.
In a briefing, Deloitte commented: ‘The aim of the proposals is to remove the ability of some businesses to escape material taxation in a sales country by contractual arrangements, or so-called fragmentation. Many multinational businesses will need to undertake considerable work in determining whether a permanent establishment exists, even in the absence of structures that involve commissionnaires or other arrangements designed to limit PEs … The discussion draft comments that preliminary work suggests that limited changes will be required in relation to transfer pricing and attribution of profits to PEs. We do not agree. Given the need to ensure a balance between the costs of additional compliance and the amount of tax to be raised in the PE countries it seems essential that the consequences are fully considered.’
Meanwhile, the discussion draft for BEPS action 10 aims to modify the OECD’s transfer pricing guidelines to reduce the scope for erosion of the tax base through excessive management fees and head office expenses by proposing an approach which identifies a wide category of common intra-group services commanding a very limited profit mark-up on costs, applies a consistent allocation key for all recipients, and provides greater transparency through specific reporting requirements.
The discussion draft for BEPS action 7 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.
In a briefing, Deloitte commented: ‘The aim of the proposals is to remove the ability of some businesses to escape material taxation in a sales country by contractual arrangements, or so-called fragmentation. Many multinational businesses will need to undertake considerable work in determining whether a permanent establishment exists, even in the absence of structures that involve commissionnaires or other arrangements designed to limit PEs … The discussion draft comments that preliminary work suggests that limited changes will be required in relation to transfer pricing and attribution of profits to PEs. We do not agree. Given the need to ensure a balance between the costs of additional compliance and the amount of tax to be raised in the PE countries it seems essential that the consequences are fully considered.’
Meanwhile, the discussion draft for BEPS action 10 aims to modify the OECD’s transfer pricing guidelines to reduce the scope for erosion of the tax base through excessive management fees and head office expenses by proposing an approach which identifies a wide category of common intra-group services commanding a very limited profit mark-up on costs, applies a consistent allocation key for all recipients, and provides greater transparency through specific reporting requirements.
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