Action Plan 7 - Permanent establishment status

OECD Model Tax Convention Updates Definitions to Combat Tax Avoidance; Modifies Article 5(5) & 5(6) for Clarity

The report addresses changes to the OECD Model Tax Convention's definition of permanent establishment (PE) to counteract strategies avoiding taxable presence under tax treaties. It introduces modifications to Article 5(5) and 5(6) to include intermediaries regularly concluding contracts for foreign enterprises, unless acting independently. An anti-fragmentation rule aggregates activities to prevent tax avoidance through business fragmentation. The report also targets commissionnaire arrangements, ensuring foreign enterprises are taxed where contracts are concluded. These changes are integrated into multilateral instruments and India's tax treaties, aligning domestic laws with international standards to prevent base erosion and profit shifting.