Taxation of Cross Border E-Commerce: Avoidance of Permanent Establishment and Multilateral Modifications to Tax Treaties

This third and final article in the series discusses in more detail BEPS Actions 7 and 15, which have particular relevance to the digital economy. It examines the steps that New Zealand and other OECD jurisdictions are taking to implement these particular recommendations dealing, respectively, with artificial avoidance of permanent establishment (PE) status and the development of a multilateral instrument to modify bilateral tax treaties. The article also tries to place Actions 7 and 15 within the context of a recent and intensifying global discussion on the ability of taxing jurisdictions to address perceived revenue leakage from large corporations that have benefited from, or are leading players in, the rise of the Internet. The simplified issue of the amount of tax that some corporations actually pay has obscured to some extent the specific work being undertaken by the OECD and its member jurisdictions to implement, individually and collectively, BEPS measures addressing the tax challenges of the digital economy. The most recent and significant example of this action—in relation to large players in the digital world—occurred in August 2016 when the European Commission (EC) announced its finding that Ireland had granted illegal (under EU rules) tax benefits of up to [euro ]13 billion to Apple, such that Apple paid an effective corporate tax rate of between 0.005 percent and 1.0 percent on its European profits between 2003 and 2014. The EC’s determination that Ireland must now recover the illegal aid (equivalent to USD14.5 billion) from Apple has fuelled further discussion among governments and commentators about the relationship between such a determination (or tax legislation) and ongoing work by the OECD. It remains to be seen whether a global or multilateral approach to address the action points in the OECD BEPS reports will ultimately prevail over a revenue-salvaging approach by individual jurisdictions.