OECD Model Tax Convention art. 5, para 5, and 6: An Analysis of the Agency Rule Pursuant to BEPS Action 7

Niels Nyborg

Student thesis: Master executive thesis


At the request of the G20, OECD has developed an international tax reform which among other things involves a number of recommendations regarding the definition of a permanent establishment (PE). The recommendations have led to several changes of the OECD Model Tax Convention. To prevent abuse and in order to restore source state taxation, the agency PE rule has been changed.
Pursuant to the changed definition of the agency PE in art. 5, para.5, and 6, an enterprise shall be deemed to have a PE if a person is acting in another state on behalf of the enterprise and, in doing so, habitually concludes contracts, or habitually plays the principal role leading to the conclusion of contracts that are routinely concluded without material modification by the enterprise. Further, it is a condition that these contracts are either in the name of the enterprise, or for the transfer of the ownership of, or for the granting of the right to use, property owned by the enterprise or that the enterprise has the right to use, etc. Even if these conditions are met, however, art. 5, para. 5, will not apply if the activities performed are covered by the independent agent exception in art. 5, para. 6.
Commissionaire structures will be covered by the agency PE rule in art. 5. It is a condition that the legal title of the goods is transferred directly from the enterprise to the customer. Further, it is a condition that the commissionaire repeatedly and not only in isolated cases concludes contracts etc. on behalf of the enterprise. The assessment-pursuant to art. 5, para 6 - of whether the commissionaire acts exclusively or almost exclusively, for one or more enterprises to which he is closely related is based on the ratio between the commissionaire’s remuneration.
The changes to the agency PE rule were made in order to prevent the artificial avoidance of PE status through commissionaire structures. All commissionaires will be considered PEs and not only those created for tax evasion purposes, and thus the broad scope of the rule seems difficult to reconcile with the purpose as described in BEPS Action 7. However, the agency PE will include those structures which are set in place in order to avoid the PE status. In the future, it will therefore not be possible to avoid PE status through commissionaire structures.

EducationsMaster i Skat, (Executive Master Programme) Final Thesis
Publication date2020
Number of pages50