Most (ex-)colleagues who have worked with me probably remember how much I have discouraged them to answer a tax question from the top of their head without checking what the Law or a DTA exactly states. In taxes the slightest mistake can be very costly and especially tax laws are being updated all the time. Therefore I have always encouraged my colleagues to read the text of a Law, Directive or DTA before answering a question. And I do not know whether it is caused by the OECD’s BEPS project or not, but regular visitors of InternationalTaxPlaza might have noticed that, now even more than ever, it is so important to carefully read the text of a DTA.
In the news section of International Tax Plaza we on regular basis report on DTAs that are concluded, signed or enter(ed) into force. Some of our latest reports give perfect examples of why it is so important for professionals who are active in the area of international taxation to have the texts of DTAs available so that they are able to carefully study the text of a DTA before answering a question we think we know the answer to.
Below I will use some examples of anti-abuse clauses included in the Articles on Permanent Establishments of different DTAs to show why it is so important to read the text of a DTA and to not assume that the articles of different DTAs are similar.
Singapore – Uruguay
On January 16, 2015 International Tax Plaza reported on the Singaporean – Uruguayan DTA, which was concluded on January 15, 2015. This DTA contains a paragraph in the article on Permanent Establishments, which arranges that “an insurance enterprise of a Contracting State shall, except in regard to re-insurance, be deemed to have a permanent establishment in the other Contracting State if it collects premiums in the territory of that other State or insures risks situated therein through a person other than an agent of an independent status to whom paragraph 7 applies”.
The potential inclusion of a similar paragraph in the OECD Model Convention was discussed in the Discussion Draft regarding Action 7 of the BEPS Action Plan, which was published in October 2014. However, in the revised Discussion Draft the OECD suggested not to include such a paragraph in the OECD Model Convention (see the revised Discussion Draft on Action 7 of the BEPS Action Plan which was published on May 15, 2015).
Singapore – Thailand
On June 11, 2015 Singapore and Thailand signed a new DTA (see International Tax Plaza’s article from June 12, 2015). The Article on Permanent Establishments as included in this particular DTA includes a paragraph stating:
“Notwithstanding the provisions of paragraphs 1 and 2, where a person - other than an agent of an independent status to whom paragraph 6 applies - is acting in a Contracting State, on behalf of an enterprise of the other Contracting State, that enterprise shall be deemed to have a permanent establishment in the first-mentioned State in respect of any activities which that person undertakes for the enterprise, if such a person:
(a) has and habitually exercises in the first-mentioned State, an authority to conclude contracts in the name of the enterprise; unless his activities are limited to those mentioned in paragraph 4 which, if exercised through a fixed place of business, would not make this fixed place of business a permanent establishment under the provisions of that paragraph; or
(b) has no such authority, but habitually maintains in the first-mentioned State a stock of goods or merchandise from which he regularly delivers goods or merchandise on behalf of the enterprise.”
The anti-abuse clause discussed above is not exactly the same, but is somewhat similar to the one suggested in the revised Discussion Draft on Action 7 of the BEPS Action Plan, which was published on May 15, 2015.
Canada – New Zealand
A third example of anti-abuse clauses included in an article on Permanent Establishments can be found in the Canadian – New Zealand DTA on the entering into force of which International Tax Plaza reported in its article of June 29, 2015.
Paragraph 5 of Article 5 (“Permanent Establishment”) of the Canadian – New Zealand DTA states the following:
“Notwithstanding the provisions of paragraphs 1, 2, and 3, where an enterprise of a Contracting State performs services in the other Contracting State:
(a) through an individual who is present in that other State for a period or periods exceeding in the aggregate 183 days in any 12-month period, and more than 50 per cent of the gross revenues attributable to active business activities of the enterprise during this period or periods are derived from the services performed in that other State through that individual; or
(b) for a period or periods exceeding in the aggregate 183 days in any 12‑month period, and these services are performed for the same project or for connected projects through one or more individuals who are present and performing such services in that other State,
the activities carried on in that other State in performing these services shall be deemed to be carried on through a permanent establishment of the enterprise situated in that other State, unless these services are limited to those mentioned in paragraph 7 which, if performed through a fixed place of business, would not make this fixed place of business a permanent establishment under the provisions of that paragraph. For the purposes of this paragraph, services performed by an individual on behalf of one enterprise shall not be considered to be performed by another enterprise through that individual unless that other enterprise supervises, directs or controls the manner in which these services are performed by the individual.”
Paragraph 6 of Article 5 (“Permanent Establishment”) of the Canadian New Zealand DTA states the following:
“For the purposes of determining the duration of activities under paragraphs 3 and 4, the period during which activities are carried on in a Contracting State by an enterprise associated with another enterprise shall be aggregated with the period during which activities are carried on by the enterprise with which it is associated if the first-mentioned activities are connected with the activities carried on in that State by the last-mentioned enterprise, provided that any period during which two or more associated enterprises are carrying on concurrent activities is counted only once. An enterprise shall be deemed to be associated with another enterprise if one is controlled directly or indirectly by the other, or if both are controlled directly or indirectly by a third person or persons.”
Above I discussed examples, which I think show the importance of carefully studying the text of a DTA before deciding what the consequence of a structure/transaction will be. That is why I feel that one of the most valuable assets of International Tax Plaza can be found in the section DTAs & TIEAs of the website. In that section we have included links to governmental websites of 55 different countries. On these websites those 55 countries have placed information and often the texts of DTAs that that respective country has concluded with other countries.
Above I only discussed a few examples, but there are more. Not only with respect to permanent establishments, but for example also regarding the articles on dividends, interests, royalties (what definition of royalties does a specific DTA for example contain), etc.
But the section DTAs & TIEAs is not the only section of International Tax Plaza that might be helpful for tax professionals specialized in international taxation. Other sections of the International Tax Plaza website that might be interesting for international tax professionals are our BEPS Library, and the sections OECD & Model Conventions, European Union (containing Directives and other EU documents) and CJEU Rulings (in which we have categorized a selection of CJEU rulings ordered based on the subject they relate to).
Via our News section, we try to keep you up to date on some of the latest tax news. But International Tax Plaza tries to be more than only a newsletter. It tries to provide you with resources that are valuable for tax professionals. And the best of all… We did the work gathering the information, and you can enjoy it COMPLETELY FREE OF CHARGE. That is why we think every specialist in international taxation should have www.internationaltaxplaza.info bookmarked as a favorite website in his or her internet browser.
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