A Comparative Approach to the Order of Priority of the Allocation of Taxing Rights over Business Profits in the OECD MC, the UN MC and the Andean Pact MC – The PE broadening. An Argentinean example.

Abstract: The current OECD´s PE threshold requires either a direct physical presence (fixed place of business) or an indirect presence through a legal representative (dependent agent). On the other hand, Model Conventions such as the UN MC, provide a wider PE threshold, including income generating activities which are not included under the OECD PE threshold. Nevertheless, it should be noted that the UN MC still requires the existence of a PE in the source State in order to justify source taxation. However, another MC such as the Andean Community Income and Capital Tax Convention achieves a full protection of the source jurisdiction by simply not including the concept of PE into the MC. In other words, source taxation, under the terms of the Andean Pact Model, does not need to be justified by the existence of a PE. The Andean Pact Model – whose Member States are categorized as developing countries – tries to secure source-based taxation by way of taxing any activity developed within its jurisdiction, even if the activity does not hold a deep substance. In light of the BEPS project issued by the OECD, it could be argued that updating or revising the PE threshold in order to take it closer to what the UN MC suggests, might not be the only solution for base erosion and profit shifting. In other words, I propose to consider the tax policy followed by the Andean Pact Model, which mainly consists of the elimination of the concept of PE.