UK and International Tax news

OECD Releases BEPS Discussion Draft On Permanent Establishments

Sunday 25th June 2017

The OECD has recently issued a BEPS discussion draft on the attribution of profits to permanent establishments.

The Report on BEPS Action 7 [Preventing the Artificial Avoidance of Permanent Establishment Status] mandated the development of additional guidance on how the rules of Article 7 of the OECD Model Tax Convention would apply to PEs resulting from the changes in the Report, particularly for PEs outside the financial sector. The Report indicated that there is also a need to take account of the results of the work on other parts of the BEPS Action Plan dealing with transfer pricing, including the work related to intangibles, risk and capital. Importantly, the Report stated that the changes to Article 5 of the Model Tax Convention did not require substantive modifications to the existing rules and guidance on the attribution of profits to permanent establishments under Article 7.

Given this mandate, this latest discussion draft, which replaces the July 2016 discussion draft, sets out high-level general principles outlined in paragraphs 1-21 and 36-42 for the attribution of profits to permanent establishments in the circumstances addressed by the Report on BEPS Action 7.

The draft also includes examples illustrating the attribution of profits to permanent establishments arising under Article 5(5) and from the anti-fragmentation rules in Article 5(4.1) of the OECD Model Tax Convention.

Comments are not sought on the 2016 discussion draft or on the changes to the PE definitions that have been agreed under Action 7 and which were published in the 2015 Final Report on “Preventing the Artificial Avoidance of Permanent Establishment Status but have been requested solely on the proposed guidance included in the latest draft on the application of Article 7 to determine the attribution of profits to permanent establishments

 

If you would like further information on the discussion draft, please contact Keith Rushen on 0207 486 2378.

Contact Us