E-commerce and PEActions 1 and 7

Brace yourself.........simplifications are coming- There is also an OECD Model based treaty between

the countries examined- The data is generally approximate- Don’t focus on the examples but on the concepts- Every rule quoted refers to the OECD Model unless

differently specified

CIAO!

‘Normal’ business structure

BUSINESS

Legal framework

▪ Art 7: Profits of an enterprise of a Contracting State shall be taxable only in that State unless the enterprise carries on business in the other Contracting State through a permanent establishment situated therein.

▪ Art 4: For the purposes of this Convention, the term “resident of a Contracting State” means any person who, under the laws of that State, is liable to tax therein by reason of his domicile, residence, place of management or any other criterion of a similar nature, and also includes that State and any political subdivision or local authority thereof.

▪ Art 46 ICC: A legal person is resident according to the seat indicated in its constitution.

▪ Art 5: For the purposes of this Convention, the term “permanent establishment” means a fixed place of business through which the business of an enterprise is wholly or partly carried on. The term “permanent establishment” includes especially:b) a branch;

‘Normal’ business structure

68,6%*

*CGIA Mestre** ilsole24ore

46%**

BUSINESS

‘Tax avoidance’ business structure

INSTRUCTIONS

ORDERS

SERVICES

Legal framework

▪ Art 7: If the enterprise carries on business as aforesaid, the profits that are attributable to the permanent establishment in accordance with the provisions of paragraph 2 may be taxed in that other State.

▪ Art 4: For the purposes of this Convention, the term “resident of a Contracting State” means any person who, under the laws of that State, is liable to tax therein by reason of his domicile, residence, place of management or any other criterion of a similar nature, and also includes that State and any political subdivision or local authority thereof.

▪ S II OECD DOC: An entity is regarded as a tax resident of Hong Kong, China if (a) (where the entity is a company) the company is incorporated in Hong Kong, China

▪ Art 5: Notwithstanding the preceding provisions of this Article, the term “permanent establishment” shall be deemed not to include: …. activity of a preparatory or auxiliary character

‘Tax avoidance’ business structure

INSTRUCTIONS

ORDERS

SERVICES

0 %* 46%**

*Stockmann, Should the exemption method have priority over the credit method in international law? p. 1** Margaret Hodge, «on what you decide to pay», Amazon case audition

Pascal Saint-Amans

BEPS Project▪ Base▪ Erosion▪ Profit▪ Shifting

Action 1

▪ Nexus: the increase in the potential of digital technologies raises questions about the current rules to determine nexus with a jurisdiction for tax purposes

▪ Data: an extremely valuable commodity never taken into consideration before

▪ Characterisation: payments made in the context of new business models, particularly in relation to cloud computing

Action 7

▪ The purpose is updating the definition of PE to prevent abuses, in particular the practice of changing the formal role of a distributor in a commissionaire

▪ Art 5 (5) and 5(6) will be changed:NO MORE exclusion of the independent agent to establish PE, unless he is not closely related to the principal (i.e. participation)Concept of principal role for the conclusion of contracts in order to establish a PE

▪ Also the commentary:The article is extended to the cases of indirect representation BUTThe mere participation to negotiation doesn’t create a PEThe profits to be attributed to the PE are governed by art 7, are only those that the PE would have derived if it were independent

▪ Art 5(4) will be changed:The requirement of preparatory or auxiliary activity must be applied to all the exceptions explicitly mentioned, i.e. no presumption of preparatory nature

▪ Also the commentary:§ 22

‘Tax avoidance’ business structure

INSTRUCTIONS

ORDERS

SERVICES

Legal framework

▪ Art 7: If the enterprise carries on business as aforesaid, the profits that are attributable to the permanent establishment in accordance with the provisions of paragraph 2 may be taxed in that other State.

▪ Art 4: For the purposes of this Convention, the term “resident of a Contracting State” means any person who, under the laws of that State, is liable to tax therein by reason of his domicile, residence, place of management or any other criterion of a similar nature, and also includes that State and any political subdivision or local authority thereof.

▪ S II OECD DOC: An entity is regarded as a tax resident of Hong Kong, China if (a) (where the entity is a company) the company is incorporated in Hong Kong, China

▪ Art 5 (5): ….. where a person …. is acting in a Contracting State …. habitually plays the principal role leading to the conclusion of contracts … b) for the transfer of the ownership of … property owned by that enterprise that enterprise shall be deemed to have a permanent establishment in that State

‘Tax avoidance’ business structure

46%

GRAZIE!