Introduction

Action Item 7 of the OECD/ G20 Action Plan on Base Erosion and Profit Shifting (BEPS) project deals with measures to counter certain commonly employed strategies for artificial avoidance of permanent establishment (PE). One such strategy is fragmentation of a cohesive business operation into several small operations for claiming PE-exclusion, under a tax treaty provision similar to Art. 5(4) of the OECD Model Convention, on the ground that each (divided) part carried on merely preparatory or auxiliary activities. The BEPS Action Item 7 seeks to frustrate such attempts by introduction of paragraph 4.1 in Art. 5 of the OECD Model Convention.