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Browsing by Author "Hyysalo, Tiia"

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  • Hyysalo, Tiia (2017)
    The purpose of this master’s thesis is to analyse the efficiency of the proposed moderations to the OECD Model Tax Convention’s definition of permanent establishment (article 5 of the OECD Model) demonstrated in the BEPS Action Plan 7. The Action Plan 7 “Preventing the artificial avoidance of permanent establishment status” is focused on two main problems that has been acknowledged to cause artificial tax avoidance in the regard of the permanent establishments. In this theses the analysis is focused on the other of these main concerns, the moderations proposed to the specific exceptions list and it’s commentary. The other significant part of the Action Plan 7 that handles the PE avoidance through commissionaire arrangements and similar strategies, is only mentioned as a reference in this theses. The main idea behind the newly proposed alterations to the Model Tax Convention’s article 5(4) considering the specific exceptions list is to prevent abuse of the treaty benefit (the non-establishment of the PE) in situations described in the specific exceptions list. The list contains examples on the situations where permanent establishment would not be formed, but the current list is outdated and does not keep up with the current business environment, as evolving technology is continuously forming new and alternative ways to conduct business. This has lead to the situation, where the overall practical interpretation of the specific exceptions list does not reflect to the meaning and original background of the provision and abusing the provision is relatively easy and also currently allowed by the system as particular rules do not prohibit it. To keep up with the business environmental changes of the day, the BEPS Action Plan proposes that the character requirement of “preparatory or auxiliary nature” would be expanded to cover the specific exceptions list as a whole. In addition to the character requirement, also a new “anti-fragmentation rule” against the artificial decentralizing of business operations within closely related enterprises was presented. The anti-fragmentation rule complements the requirement of preparatory or auxiliary nature and improves the effectiveness of the provisions. Put together these measures are deemed to prevent further abuses of the specific exceptions list. In this theses the proposed alterations to the article are demonstrated and analysed in the light of the definition of “artificial avoidance”. Also further reasoning and speculation of the term “artificial” is made both from domestic and international point of view. Another important part of this theses is the evaluation of the Finnish point of view to the implementation of the Multilateral Convention to Implement Tax Treaty Related Measures to Prevent BEPS. The convention is intended to help with the swift and coherent implementation of the BEPS proposals into the national jurisdictions and their tax treaties. The efficient implementation of the moderations proposed in the BEPS Action Plan 7 considering the anti-abuse of the specific exceptions list of article 5(4) of the OECD Model Tax Convention is a key factor in determining the success and impressiveness of the BEPS whole report. The Finnish national stand on implementation of the convention taken in the Ministry of Finance memorandum is critically evaluated, and also statements form relevant parties have been analyzed and taken into consideration. The principal outcome of this theses is a conclusion that in theory, the proposed measures against the abuse of the specific exceptions list are efficient and they would be suitable for their purpose and ambitions. However the concrete and actual efficiency cannot be defined theoretically only, and the eventual outcome of the whole BEPS project is now fully depending on the political will of the nations to make the changes come into reality also in action, not just in theory.