Strategizing Multinational Tax Risks

OECD has published the “only” response received  for its work on BEPS Action 7 (Artificial Avoidance of PE Status) from a Chartered Accountant in India, outlining strategies that may result in the artificial avoidance of PE status re: base erosion and profit shifting.  The comment discusses a few measures generally adopted by multinationals to avoid PE in the source jurisdiction.  The link is provided herein for reference:

http://www.oecd.org/ctp/treaties/oecd-publishes-comments-on-strategies-allegedly-resulting-in-artificial-avoidance-of-pe-status.htm

The examples, and short references to the comments, detail the following “artificial measures” to avoid PE:

• “Preparatory and auxiliary activities” exception: processing of goods exception may require review as “auxiliary” in character
• Agent PE: local entity  appointed as “agent” acting on behalf of foreign multinational, high threshold of definition restricting tax authorities
• Independent Agent: activities of Principal, multiple Principals
• Professional service provider: definition requires substantial amendment
• PE definition and “permanency”: developing a “negative list” category re: performance of activities in source countries
• Income attribution and transfer pricing: Broaden PE scope/lower PE threshold, electronic commerce reference

As PE is a hot topic that is being undertaken by the OECD, this comment should be reviewed, especially due to the fact that it is the only response received.