PERMANENT ESTABLISHMENT: RECENT DEVELOPMENTS AND PRACTICAL CONSIDERATIONS ON PREPARATORY AND AUXILIARY ACTIVITIES

Amongst a number of changes to the provisions on permanent establishments, the BEPS Action 7 Final Report marks a major turning point in terms of “preparatory” or “auxiliary” activities. According to these new changes multinational corporations must above all make sure that the business models they have applied until now are compatible with the new principles and – if required – change them. The actual text of the OECD model convention as well as section 162 of the Italian Tax Code (TUIR) contain some examples (e.g. fixed PE solely for the purpose of storage, display or delivery of goods) aimed at qualifying the activities carried out as “preparatory” and “auxiliary”. Although these activities contribute to make up a fixed place of business, they are not sufficient for creating a “permanent establishment”.

Within the BEPS project, the OECD’s aim was to clarify if a list of the “preparatory” and “auxiliary” activities “automatically” meant that the place of business is not a PE or if such a list should just be considered illustrative. The final version of Action 7 tends towards the latter. Hence, storage of goods in different warehouses in sectors as e-commerce (for which this activity is a key factor) may no longer be defined as “auxiliary and/or preparatory”. These considerations show that the question must be carefully analysed on a case-by-case basis in order to determine if the activities carried out are core business activities and therefore lead to the assumption of a permanent establishment (as e.g. in the Amazon case).