Attribution of Profits to Permanent Establishments

1. S. 154Introduction

In the light of the recent global developments to tax the digitized economy, such as inter alia:

• OECD’s Programme of Work to develop a consensus solution to the tax challenges arising from the digitalization of the economy;

• OECD’s Public consultation document Secretariat Proposal for a ‘Unified Approach’ under Pillar One;

• unilateral measures undertaken by certain countries (such as Austria, France, Italy, Spain, and the United Kingdom);

• the public consultation on the proposal for amendment of Rules for Profit attribution to Permanent Establishment (India);

• the recent proposals of the supra-national bodies such as the EU's Economic and Social Committee initiative opinion identifying four allocation keys applied to the residual profit (i.e. R&D costs, assets, employment and sales); and

• a need to present/clarify the concept of a (digital) Significant Economic Presence (adapted to the unified approach) in a form of a case study appears to reflect whether such proposed solution is feasible when facing existing business models.

For that end, we present three case studies set in the pharmaceutical industry. The first case study portrays a simple over-the counter-drug sales (downst...