In an attempt to close the loopholes of the existing PE definition through BEPSBEPS stands for "Base Erosion and Profit Shifting". BEPS refers to tax avoidance strategies used by multinational enterprises (MNEs) to exploit gaps and mismatches in the international tax system. By shifting profits from high-tax jurisdictions to low- or no-tax locations, MNEs reduce their overall tax burden, even if little to no economic activity occurs in the low-tax jurisdictions. These practices erode... Action 7, the OECDThe Organisation for Economic Co-operation and Development (OECD) is an international organisation comprising 38 member countries, established to foster economic growth, trade, and development on a global scale. Founded in 1961, the OECD provides a forum for governments to collaborate, share policy experiences, and develop solutions to common economic challenges. The OECD's core mission is to promote policies that improve... has, inadvertently, also lowered the threshold for the classification of the local business activities of a foreign enterprise as a PE of such enterprise. It has, in turn, opened the road for many governments to adopt diverse interpretations of Article 7 to attribute additional profit to the local operations of foreign enterprises.

This means that the “zero-sum approach” or the “single taxpayer approach”, which suggests that after an arm’s length remuneration has been provided to a dependent agent (as per the arm’s length principleThe Arm’s Length Principle (ALP) is a cornerstone concept in international taxation and transfer pricing. It requires that transactions between related parties, such as subsidiaries or affiliates within a multinational enterprise (MNE), mirror those that would occur between independent entities under similar circumstances. This principle ensures that each entity within an MNE is compensated fairly and transparently, based on the... enshrined in transfer pricingTransfer pricing is a fundamental concept in international taxation that defines the pricing methods and rules applied to transactions between related entities within a multinational enterprise (MNE). In the context of tax regulations, it governs how prices for goods, services, or intangibles (such as intellectual property) are set when these items are exchanged between different branches, subsidiaries, or affiliates of...), no further remuneration needs to be awarded to the dependent agent PE is no longer valid anymore.

In this informative leaflet, we explain the changes that have resulted after BEPSBEPS stands for "Base Erosion and Profit Shifting". BEPS refers to tax avoidance strategies used by multinational enterprises (MNEs) to exploit gaps and mismatches in the international tax system. By shifting profits from high-tax jurisdictions to low- or no-tax locations, MNEs reduce their overall tax burden, even if little to no economic activity occurs in the low-tax jurisdictions. These practices erode... Action 7, when and how they become applicable to countries, and the process steps that each multinational enterprise should follow to clearly map out the countries in which they have the risk of formation of a PE.

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