The Base Erosion and Profit-Shifting Project, Action 7: A Critical Analysis of the Preparatory/Auxiliary Extension and the New Anti-Fragmentation Rule in the 2017 OECD Model Tax Convention

Abstract: The PE is a concept under scrutiny. Action 7 of the BEPS Action Plan has laid out a path to defend against artificial avoidance of PE status in light of BEPS concerns that can be associated with moderating business practices. Out of Action 7 has come an update to Art. 5(4) MTC, with the extension of the ‘preparatory or auxiliary’ provision to all of the specific activity exemptions, as well as new provisions at Art. 5(4.1) MTC and Art. 5(8) MTC, together comprising the new ‘anti-fragmentation rule’ This 2017 MTC update has expanded existing concepts and introduced new concepts that need to be understood and analysed in order to assess the success of the Action 7 work. This alludes to the critical research question of this thesis, which is to critically analyse the extension of the ‘preparatory or auxiliary’ provision and the new anti-fragmentation rule in light of the appropriateness of the reforms as regards established legal principles and norms, to review the success of the reforms as against the objectives and goals of the OECD through the Action 7 work, and to assess whether the goals and objectives ought to have been adjusted or could be adjusted in the future in order to bring about a better solution to the artificial avoidance of PE status. This is performed in this thesis by first exploring the background to the PE concept in a wider sense, before offering specific critical analyses upon elements contained in the reforms. Amazon, the e-commerce giant, will be followed as a case example in order to give context to the impact of the reforms in practice. This thesis concludes that the need to transform the PE concept in light of the BEPS concerns prevails against the concerns that can be associated with the reforms of the 2017 MTC update.