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Discussion draft on the attribution of profits to permanent establishments

04 Jul 2017

The OECD has issued a discussion draft on the attribution of profits to permanent establishments (PEs), following the report on Action 7 (Preventing the artificial avoidance of PE Status) of the BEPS Action Plan.  The Action 7 report (the Report) recommended that Article 5 be amended so that where a person acts in the State on behalf of the enterprise and, in doing so “habitually concludes contracts, or habitually plays the principal role leading to the conclusion of contracts (in the name of the enterprise or for the transfer of goods and services by the enterprise) that are routinely concluded without material modification by the enterprise”, then that enterprise has a PE in the State.  The Report mandated the development of additional guidance on how the rules of Article 7 (relating to profit attribution) of the OECD Model Tax Convention would apply to PEs resulting from the changes in the Report.  This new discussion draft has been developed which sets out high-level general principles for the attribution of profits to PEs in the circumstances addressed by the Report, including examples.  Interested parties are invited to send their comments on the discussion draft to the OECD by 15 September 2017.

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