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CA Final · Direct Tax Laws & International Taxation · Fundamentals of BEPS

Under the BEPS Action 7 recommendations on preventing artificial avoidance of permanent establishment status, which change was made to the dependent agent rule?

Action 7 extended the dependent agent PE rule so that a person who habitually plays the principal role leading to contracts routinely concluded without material modification by the enterprise can create a PE, even if the contracts are not formally concluded in the enterprise's name. This targets commissionaire structures.

  1. AAn agent who habitually plays the principal role leading to conclusion of contracts that are routinely concluded without material modification by the enterprise can create a PE, even without formally concluding contractsCorrect
  2. BOnly an agent who legally signs contracts in the name of the enterprise can create a PE
  3. CCommissionaire arrangements are expressly excluded from creating a PE
  4. DAll preparatory or auxiliary activities create a PE irrespective of context

Explanation

Action 7 widened the dependent agent PE test to cover agents, including commissionaires, who habitually play the principal role in concluding contracts that are routinely concluded without material modification. This closes the gap where contracts were formally concluded abroad. The option limited to legal signing describes the older, narrower rule. Commissionaire arrangements were targeted, not excluded.

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