Managing Permanent Establishment Risks in Multinational Enterprises in post-BEPS era

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School of Business | Master's thesis
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The objective of this thesis is to identify the main PE risks faced by multinational enterprises at different stages of value chain with a focus on distribution and to suggest ways to address these risks to ensure tax compliance in multiple jurisdictions. The term “PE risk” in this paper means the risk of failure to comply with applicable regulations in identifying permanent establishment in situations where certain business activities of the enterprise are held outside the country of its tax residence. The thesis is done by conducting a literature review and structuring the results under risk management methodology. This research focuses on the substance of the PE concept under the OECD Model Tax Convention. It does not cover procedural aspects of profit attribution to PE nor dispute resolution mechanisms. Previous research has uncovered the challenges in balancing roles of the PE concept in ensuring both sufficient tax revenue and flexibility for taxpayers. The complexity theoretical approaches to the PE concept in the OECD Model is multiplied by diverse sources of law that may define the presence of PE on a case-by-case basis: supranational regulations (e.g., the EU law), bilateral and multilateral tax treaties, domestic laws, and often unpredictable case law. Comprehensive tax risk management framework should ensure that MNE will not overlook risks that are likely to happen due to communication failures, agency problems, or misunderstanding of applicable regulations. Keystones of an efficient tax risk management framework are effective business model tax risk assessment based on accurate and detailed document management and clear communications on tax compliance goals and risks among multiple stakeholders.
Thesis advisor
Viitala, Tomi
permanent establishment, double taxation, BEPS, Action 7, OECD Model Tax Convention
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