An Analysis Of The Legal Issues Of The Exception Clauses For Permanent Establishments Under The BEPS Project

In the tax treaties,the Permanent Establishment is closely related to the distribution of the tax jurisdiction betweenthe residence country and the source country.Only if non-resident enterprise has a permanent establishment in the source country,business profits attributed to the permanent establishment can be taxable insource country.Otherwise,the tax jurisdiction rights belong to the residence country.In view of the importance of permanent institutions in the division of international jurisdictions,multinational corporations have used circumventthe exiting PE definition to reach the taxable avoidance,including artificial avoidance of PE status through commissionaire arrangements and similar strategies,artificial avoidance of PE status through the specific exceptions in Art.5(4)and other strategies for the artificial avoidance of PE status.As the UK's largest retailer,Amazon has paid almost no corporate income tax in the UK.One of the important reasons is that Amazon uses specific exceptions in Art.5(4)to reach tax avoidance in the UK.To prevent the abuse of PE provisions by source countries to undermine the tax incentives that nonresident enterprises should have enjoyed,Tax treaties generally provide thatspecific exceptions in Art.5(4)limits the scope of the application of the PE.However,it leaves room,where multinational corporations make tax planning with it.The OECD and governments have introduced measures to address the multinational corporations' use of PE exceptions to reduce the tax base.At the level of the international tax law,the OECD has amended the definition of the PEexception in the BEPS Action 7.The OECD emphasizes that all activities listed in Article 5(4),should be generally considered to be of a prepared or auxiliary nature,and suggests the introduction of anti-fragmentation provisions to address the “anti-fragmentation activities” problems among closely related enterprise.The OECD's program,which further reduces the threshold for permanent establishments,may lead to a significant increase in PE and tax disputes,making it increasingly important to allocate profits to PE.Therefore,multinational companies should adjust the business model and corporate structure to reduce the unnecessary tax burden.On the domestic tax law,on April 1,2015,the British government introduced "Google tax" at 25%:where groups create a tax benefit by using transactions or entities that lack economic substance(as defined),and/or;where foreign companies have structured their UK activities to avoid a UK PE.The most intuitive effect is that on May 1,2015,Amazon began to British consumers to create part of the income will be directly included in the Amazon UK division,replacing transferringthe income to Luxembourg.While Chinese domestic enterprises accelerate to go out,mergers and acquisitions of foreign enterprises happens frequently.But China is a vast country with a large population,being significant position in the international trade market.It has always been a battleground for multinational enterprises.In order to prevent transnational enterprises to reduce the tax base and the transfer of profits,China can learn from the BEPS project seventh action plans or revised results,while concluding bilateral agreements,adhere to the permanent establishment clause It has always been a battleground for multinational enterprises.In order to prevent transnational enterprises to reduce the tax base and the transfer of profits,China can learn from the BEPS project seventh action plans or revised results,at the conclusion of bilateral agreements,adhere to the permanent establishment clause applies only to the preparatory or auxiliary activities applies only to the preparatory or auxiliary activities.