"NEWS 1 June 2016-Changes coming within the definition of permanent establishment"
The Final Report of the Action 7 of the Beps (Base Erosion and Profit Shifting) published by the Oecd provides several changes to the definition of "permanent establishment" contained in art. 5 of the OECD Model Convention against double taxation. The ratio of the speech lies in international needs warned update the definition of permanent establishment as it is deemed no longer able to ensure proper allocation of the right to impose taxes on corporate profits. The instrument with which the normative transposition of these changes may be made is that of the cd. "Multilateral agreement", without that recur in this way the need to intervene in all double taxation Conventions which are in force between the States; Italian side, there is to be expected however also a contribution by updating the text of art. 162 Tuir containing precisely the definition of permanent establishment.
It is however important to note that the amendments contained in document cited apply only for the future, so they do not affect the application of the above provisions of the conventions in force structured according to the OECD model.
The document is fairly complex, but the main changes it proposes to make to the status quo cover the following themes:
- Regulation of CDs. "commissionaire agreement", that is, the contractor agreement configuration and whether there are any artificially tools designed to avoid the incorporation of a permanent establishment in the country: in this context, the document focuses on the notion of "contracting business" just as much as this is of relevance to the identification of a possible permanent establishment of the purchaser;
- the definition of preparatory activities and/or auxiliary, with particular reference to contrast against possibly aimed at artificially fragmenting business maneuvers (cd. anti fragmentation rule) always in order to circumvent the configuration of the permanent establishment of the foreign entity.
The impact of this Report is therefore not merely notional but can lead, in some cases, multinational enterprises, the need to review the setting of its business model in order to ensure to be subtracted, in future, the likelihood of disputes concerning the alleged incorporation of an establishment in a State in which, until now, the pattern of business adopted did not place the theme with strong criticism.
We have given that one of the structures which has received attention of the OECD is that of the distribution model of the contractor. The OECD is then left in the direction of changing the definition of permanent establishment contained in art. 5 of the Model Convention against double taxation by providing that could use the case of "permanent establishment" also regardless of whether there is a conclusion of contracts on behalf of the non-resident enterprise buyer, when the person (Commissionaire) plays a key role in the conclusion of such contracts which are then systematically refined without the foreign firm (client) intervenes with changes of substance.
A symptom of resorting to this condition, reported in the review, would be constituted by the anticipation of a compensation for the company's foreign turnover Commissionaire commensurate with client.
However they are excluding promotional and advertising activities, as well as cases of mere participation of the company in the negotiations which, in themselves, could complement that decisive participation in the conclusion of the contract that is a prerequisite of permanent establishment, as well as remain excluding figures of the Distributor that buys and sells in the name and on their own.