How can the proposed changes to the OECD tax model convention in action 1 and action 7 counter the issue of an artificial avoidance of a PE status?

Sammanfattning: The purpose of this thesis is to clarify how, according to BEPS action 1 and action 7, can the amendments of the “specific activity exemptions” in article 5 paragraph 4 of the OECD Model Tax Convention on Income and Capital (the model convention) counter the issue of an artificial avoidance of a PE status. The main issues that are connected to the concept of a permanent establishment are artificial avoidance of the status of a permanent establishment, the use of transfer pricing rules in order to artificially allocate the profits of a permanent establishment to low tax states and finally that some enterprises that operate within the digital economy can avoid the status of a permanent establishment due to the lack of physical presence. The common result of all of these issues is that the source state right to tax economic activities within its borders is limited. This limitation has resulted in a situation where the allocation of taxing rights can be perceived as unfair. In order to prevent such unfair allocation of taxing rights and to ensure a fair taxation of economic activity the OECD has in the BEPS-project explored the issues of the digital economy further in action 1 and presented changes to the current rules in action 7, that would prevent artificial structures. These actions have been a topic for discussion. In the thesis these proposed changes are analysed in the light of the issues mentioned above. The conclusion from that analysis was that the changes can have a positive effect in countering artificial structures where enterprises have a physical presence in the source state. However, regarding the issues that relate to the digital economy and artificial allocation of profits between the enterprise and its permanent establishment the effect remains questionable.