Attribution of Profits to Permanent Establishments

1. S. 24Theoretical Background

When talking about planning scenarios regarding the structuring of business units within in multinational enterprises (MNEs), one of the first questions to deal with is the question of whether the business activities of an MNE in a foreign country should be carried out via an associated enterprise or via a permanent establishment (PE) situated in that country.

In light of this strategic decision-making process, plenty of different aspects (like legal issues, labour law issues, customs, general business specific aspects, accounting, etc.) are to be contemplated; one of these aspects – which will be the focus of the given paper – is the issue of profit attribution. For purposes of this paper, the term ‘profit attribution’ is to be understood as an umbrella term that comprises both (i) the profit attribution between associated enterprises in light of Art 9 OECD Model 2017 and (ii) the profit attribution between a head office and its PEs in light of Art 7 OECD Model 2017.

In order to properly deal with the aspect of profit attribution within MNEs – irrespective of Art 7 or Art 9 OECD Model 2017 – two dogmatic questions have to be considered:

• The first question is ...