CA Final · Direct Tax Laws & International Taxation · Fundamentals of BEPS
Under BEPS Action 7, Orchid Software Inc, a foreign enterprise, uses a local Indian agent that habitually concludes contracts on its behalf but is structured as a commissionaire so that contracts are formally signed abroad. Which change to the permanent establishment definition does Action 7 recommend to address this?
Action 7 recommends widening the dependent agent PE to cover a person who habitually concludes contracts or plays the principal role leading to contracts routinely concluded without material modification by the enterprise. This captures commissionaire arrangements, rather than abolishing the agent PE concept.
- AExtend dependent agent PE to a person who habitually plays the principal role leading to conclusion of contracts that are routinely concluded without material modification by the enterpriseCorrect
- BRemove the dependent agent PE concept altogether
- CLimit PE to a fixed place of business held for over 5 years
- DExempt all preparatory or auxiliary activities even when part of a cohesive business operation
Explanation
Action 7 widens the dependent agent PE so that it covers a person who habitually concludes contracts or habitually plays the principal role leading to the conclusion of contracts routinely concluded without material modification by the enterprise. This captures commissionaire arrangements. Removing the concept or raising a duration test would narrow rather than widen PE.
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