BEPS action 4 (2)

BEPS (Base Erosion and Profit Shifting) refers to the practice of multinational companies shifting profits to low-tax jurisdictions to minimize their overall tax burden. This problem has been recognized by the international community, and steps have been taken to address it through a set of actions known as the BEPS Action Plan, developed by the Organisation for Economic Co-operation and Development (OECD) in 2013.

BEPS Action 4, specifically, focuses on preventing the artificial avoidance of permanent establishment (PE) status. Under international tax rules, a company is considered to have a PE in a country if it carries on business activities there through a fixed place of business, such as an office or factory. If a company does not have a PE in a country, it is not subject to tax there. The goal of Action 4 is to ensure that companies cannot avoid having a PE by structuring their operations in a way that artificially separates the location of their income-generating activities from the location of the management and control of those activities.

One way that companies may avoid having a PE is through the use of dependent agents. A dependent agent is an agent that habitually concludes contracts on behalf of the company, or habitually plays a principal role leading to the conclusion of contracts. Action 4 aims to clarify the criteria for determining when an agent is considered dependent, in order to prevent companies from avoiding having a PE by claiming that contracts were concluded by an independent agent.

Another way that companies may avoid having a PE is through the use of commissionaire arrangements. A commissionaire arrangement is when a company uses an intermediary to conclude contracts on its behalf, while maintaining control over the contracts and the associated profits. Action 4 aims to clarify the criteria for determining when a commissionaire arrangement is considered a PE, in order to prevent companies from avoiding having a PE by claiming that contracts were concluded by an intermediary.

The BEPS Action 4 also addresses the concept of a "significant digital presence" for companies that operate in the digital economy. It aims to ensure that companies that have a significant digital presence in a country pay taxes in that country, even if they do not have a physical presence there. This is done by providing guidance on how to determine when a company has a significant digital presence, and on how to tax the resulting profits.

In conclusion, BEPS Action 4 is one of the key actions of the BEPS Action Plan that focuses on preventing the artificial avoidance of permanent establishment status. It aims to ensure that multinational companies pay taxes in the countries where they have significant economic activities by clarifying the criteria for determining when a company has a PE, addressing the use of dependent agents and commissionaire arrangements, and addressing the concept of a "significant digital presence" for companies that operate in the digital economy. The implementation of these actions is crucial in ensuring that multinational companies pay their fair share of taxes, and to prevent them from shifting profits to low-tax jurisdictions.