In an attempt to close the loopholes of the existing PE definition through BEPS Action 7, the OECD 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 principle enshrined in transfer pricing), no further remuneration needs to be awarded to the dependent agent PE is no longer valid anymore.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 BEPS 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.
TPA Global offers to conduct a PE Risk Analysis including a quantitative calculation of the risk. This assists corporations in devising an appropriate strategy for mitigating such risks based on the degree of risk and the probability of them materialising.
Contact us for more details on the identifying, quantifying and mitigating PE risks for your corporation!
Transfer Pricing Associates introduces TPA BEPS Desk. If you have any questions, or need more detailed advice on any aspects of BEPS related issues, please get in touch with us. The TPA Global network has alliance partners throughout the world, and the network can provide multi-disciplinary approach on today's critical transfer pricing challenges faced by multinational enterprises.