Action 7

Action 7: Expansion of the concept of permanent establishments

On 24 November 2016, the final text of the OECD’s multilateral instrument (“MLI”) was published. After being signed by all participating countries in June 2017 and subsequent ratification as part of national legislation processes, the MLI aims to transpose BEPS measures uniformly and without bilateral negotiations into existing DTAs.
With respect to preventing the artificial avoidance of permanent establishment status (BEPS action 7), the following changes may be made in the course of 2017:

  • Establishment of a permanent establishment when taking on a key role in the conclusion of a contract (i.e. due to actual actions) )
  • Amendments to the excluded activities for which no permanent establishment is established or changes to the rules on combining preparatory or auxiliary activities 
  • Regulations on the artificial splitting of business activities (splitting up of contracts) 
  • Revision of the definition of a related party 
  • Improvement of the effectiveness of dispute resolution mechanisms

To anticipate the unintentional establishment of a permanent establishment and the associated legal obligations (compliance), companies must further get to grips with this topic and analyse existing structures, projects and processes.

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