Tax Risk on Permanent Establishment: BEPS Action Plan 7

Companies operating cross border through presence of Branch offices, Liaison and representative offices, appointed distributors and agents should closely watch the changes coming through in international tax norms.
OECD and G20 countries adopted a 15 point action plan to address Base Erosion and Profit Shifting (BEPS) and Action Point 7 deals with “preventing avoidance of Permanent Establishment (“PE”) status”.
Article 5 of the OECD Model Treaty deals with “Permanent Establishment” concept and provides guidance on taxation norms when a company undertakes inter-connected business operations outside its resident country. Through the BEPS Action Plan, there are significant amendments proposed to be brought out in Article 5 which are intended to prevent artificial avoidance of PE status.
With the increase in internet based business activity and expanding E-commerce Industry, it is not necessary to create a fixed place of business in a particular country to create a source of profit in that country.
Our attached article analyses changes that will be made to the definition of PE in Article 5 of OECD Model Treaty to prevent the use of certain common tax avoidance strategies that are currently used to circumvent the existing the PE definition.
We strongly recommend companies operating in cross border situation to review the BEPS development and take action, if any required, within their group (any structural changes or changes in current transfer pricing policy).