OECD Guidance on Permanent Establishments

Guidance on the attribution of profits to permanent establishments 2010

On 22 July 2010 a new report on the attribution of profits to permanent establishments was published. The 2008 Report will serve as background guidance to the 2008 revised Commentary‘s interpretation of the pre-2010 Article 7 for as long as bilateral tax treaties that are based on the text of that version of Article 7 are in force. However, because the 2008 Report included a number of references to the text of the pre-2010 Article 7, and because the Committee revised the text of Article 7 in the 2010 update to the Model Tax Convention, the Committee believed it would be advisable to prepare a modified version of the 2008 Report which would delete obsolete references to the text of the pre-2010 Article 7 and which would align the Report‘s wording with the wording of the new Article 7, thus making the modified Report available as a future reference for guidance on the interpretation of future treaties based on the new Article 7. The Committee decided to prepare this modified version of the 2008 Report for publication simultaneously with the 2010 update to the Model Tax Convention. The 2010 Report does not change the conclusions of the 2008 Report and has been prepared simply to avoid difficulties that might arise in trying to use the 2008 Report for the interpretation of the new Article 7. REPORT-ON-ATTRIBUTION-OF-PROFITS-TO-PE-2010 Related content: France vs Valueclick Ltd. March 2018, CAA, Case no 17PA01538 The issue in the case before the Administrative Court of Appeal of Paris was whether an Irish company had a PE in France in a situation where employees of a French company in the same group carried out marketing, representation, management, back office and administrative assistance services on behalf of the group. The following facts were used to substantiate the presence of a French PE: French employees negotiated the terms of contracts and were involved ...

Guidance on the attribution of profits to permanent establishments 2008

On 17 July 2008, the OECD Council approved the release the Report on the Attribution of Profits to Permanent Establishments . The Report includes a preface and four Parts. Part I sets out general considerations for attributing profits to permanent establishments, regardless of the business sector in which they operate. Part II describes the application of the approach to enterprises carrying on a banking business through a permanent establishment. Part III addresses the situation of permanent establishments of enterprises carrying on global trading in financial instruments. Part IV deals with the application of the approach to PE of enterprises carrying on insurance activities. REPORT-ON-THE-ATTRIBUTION-OF-PROFITS-TO-PE-2008 Related content: Italy vs Citybank, April 2020, Supreme Court, Case No 7801/2020 Citybank is resident in the U.S. and is performing activity in Italy by means of a PE. The Italian PE granted loan agreements to its Italian clients. The bank decided to sell to a third party these agreements and generated losses which were attributed to the PE’s profit and loss accounts. Following an audit of the branch concerning FY 2003 in which the sale of the loan agreements took place, a tax assessment was issued... Spain vs. Roche, January 2012, Supreme Court case nr. 1626/2008 This case is about the consequences of converting a manufacturer and full-fledged distributor into a toll manufacturer and commissionaire, without actually changing the underlying operations. The Supreme Court decided that the restructured Spanish entity acted as a manufacturing agent that created a PE. The profits attributed to the PE included not only the manufacturing profits but also the profits from the distribution activity on behalf of Roche Vitamins Europe Ltd. in Switzerland. Prior to a business restructuring in 1999, the Spanish subsidiary was... Spain vs. Borex, February 2011, National Court case nr. 80-2008 A Spanish subsidiary of a UK Group (Borex), which imported, processed and sold the materials ...

Additional guidance on the attribution of profits to permanent establishments

The OECD has released additional guidance on the attribution of profits to permanent establishments. This additional guidance sets out high-level general principles for the attribution of profits to permanent establishments arising under Article 5(5), in accordance with applicable treaty provisions, and includes examples of a commissionnaire structure for the sale of goods, an online advertising sales structure, and a procurement structure. It also includes additional guidance related to permanent establishments created as a result of the changes to Article 5(4), and provides an example on the attribution of profits to permanent establishments arising from the anti-fragmentation rule included in Article 5(4.1). See also the 2008 Guidance and 2010 Guidance. additional-guidance-attribution-of-profits-to-permanent-establishments-BEPS-action-7 Related content: Italy vs Citybank, April 2020, Supreme Court, Case No 7801/2020 Citybank is resident in the U.S. and is performing activity in Italy by means of a PE. The Italian PE granted loan agreements to its Italian clients. The bank decided to sell to a third party these agreements and generated losses which were attributed to the PE’s profit and loss accounts. Following an audit of the branch concerning FY 2003 in which the sale of the loan agreements took place, a tax assessment was issued... South Africa vs. Tradehold Ltd, May 2012, Supreme Court of Appeal, Case No. 132/11 Tradehold is an investment holding company, incorporated in South Africa, with its registered office at 36 Stellenberg Road, Parow, Industria, and is listed on the Johannesburg Stock Exchange. During the tax year under consideration, being the year of assessment ended 28 February 2003, Tradehold’s only relevant asset was its 100 per cent shareholding in Tradegro Holdings which, in turn, owned 100 per cent of the shares in Tradegro Limited, a company incorporated in Guernsey which... France vs. Google, April 2019, Administrative Court of Appeal, Case N° 17PA03065 In this ...