An analysis on the creation of a fixed place and agency permanent establishment and how BEPS action 7 will change the threshold.

Abstract

This research study considers how BEPS Action 7 will change the creation of a fixed place PE and agency PE. The purpose of the study is to explore the current requirements of creating a fixed place PE and an agency PE and how BEPS Action 7 will change these requirements. The importance of the PE concept was identified as it provides the global parameter to determine a right of a country to impose tax on a non-resident. The PE concept creates the necessary connection between where the country and the non-residennt. Certain international practical concepts were discussed to ensure an appreciation for the complex world in which PEs operate. The research study then moves to the discussion of the requirements to create a fixed PE or an agency PE. The requirements of both require a sufficient nexus before a source country may tax the profit of the non-resident. As mentioned above, the purpose of this study is to explore how the proposed changes in BEPS Action 7 will change the current threshold of creating a fixed PE and agency PE. The development up until the final BEPS Action Package are discussed together with the MLI and how it is created to quickly and effectively change the current double tax agreements in force. The relationship between South Africa and BEPS and its elections specifically relating to PEs are also discussed. This research study concludes with recommendations by the Davis Tax Committee as well as the researcher’s own recommendation on South Africa’s election on the relevant articles in the MLI.