Attribution of Profits to Permanent Establishments

1. S. 4General Remarks

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 provisions concerning the definition of a PE in a host country laid down in Art 5 OECD Model as well as the profit attribution rules between head offices and PEs laid down in Art 7 OECD Model were subject to various changes throughout the last years:

The level of applicability of the principles of profit attribution:

With respect to the existence of PEs in light of Art 5 OECD Model (i.e. regarding the level of applicability of the principles of profit attribution), the changes resulting from the OECD BEPS Project that were incorporated to the OECD Model during the course of the 2017 update are especially of major importance.

This is caused by the fact that these changes eventually led to a decrease of the PE threshold, thus resulting in the existence of more PEs in host states (and accordingly creating taxing rights there).

The level of application of the principles of profit attr...