Permanent establishments 2.0

In times where the success of a company depends on short delivery times, the logistics of a trading company is becoming more and more important.

Storage, purchase and exhibition in the future as permanent establishments?

As part of the Base Erosion and Profit Shifting (BEPS) Action Point No 7 Section B, the proposed new version of Art. 5 (4) OECD Model Convention now extends the conditions for the Preparatory Character / Auxiliary Character to all letters in paragraph 4 (TZ 13 Final Report). The inclusion of the formulation proposal contained in Item 13 of the Final Report into the individual double taxation agreements would mean that, among others, also

  • Exhibition and distribution warehouse as well as
  • Purchase or procuring information about a fixed business facility would be considered as a permanent establishment.

Can a permanent establishment be avoided by the division of activities (fragmentation)? 

So far yes, it can. A provision is now introduced in Article 5 (4.1) OECD Model Convention which is intended to prevent fragmentation by the taxpayer and its related parties.

Changes are also to be expected at the "agency " and the "construction and assembly plants " permanent establishments!

Link to the full article (in German):

Table: Warehouse as a permanent establishment

Author: Daniel Anwander