Attribution of Profits to Permanent Establishments

S. VPreface

In the last decades, profit attribution to permanent establishments (PE) was, next to transfer pricing, one of the most controversially discussed topics in the area of international tax law and, therefore, is of great interest and importance for both taxpayers and tax administrations. Both the provision concerning the definition of a PE in Art 5 OECD Model as well as the profit attribution rule in Art 7 OECD Model were subject to various changes throughout the last years. Regarding the attribution of profits to PEs, the start of the OECD’s work already dates back to 1993/1994, which eventually resulted in a step-wise implementation of the Authorized OECD Approach (AOA) in 2008 and 2010.

During the course of the BEPS Project, the main focus was the extension of the definition of the PE while the profit attribution to PEs was addressed in the follow-up work to BEPS Action 7, i.e. latest in the ‘PE Report 2018’. The OECD focused hereby on the specific aspect of the profit attribution to those PEs resulting from the changes to Art 5 OECD Model 2017.

While the profit attribution between associated enterprises (Art 9 OECD Model) and the profit attribution between head offices and it...