ICC Document & publication

ICC Comments on OECD Discussion Draft on “Additional Guidance on Attribution of Profits to Permanent Establishments” – BEPS Action 7

The OECD Discussion Draft provides guidance on the Attribution of profits to Permanent Establishments in the context of the Report on BEPS Action 7. The Draft sets out high-level general principles on attribution which are most relevant and widely accepted, as outlined in the Report.

The International Chamber of Commerce (ICC) welcomes the opportunity to comment on the OECD Discussion Draft on “Additional Guidance on Attribution of Profits to Permanent Establishments”.

The revisions to the definition of permanent establishment (PE) both in the Model Tax Convention (MTC) and the Commentary under BEPS will potentially result in a vast number of artificial PEs of non-resident enterprises in host countries. In the coming years, all Tax Administrations and Multinational Enterprises (MNEs) will have to deal with more taxation and double taxation issues related to PEs. Bearing in mind that the Authorised OECD Approach (AOA) for the attribution of profits to PEs has not been accepted and adopted in the majority of the recent Double Tax Treaties (DTT), the work of the OECD in developing Additional Guidance on Attribution of Profits to PEs (AG) would be substantial. As the world business organization, we believe that it would be helpful to have practical solutions to the potential taxation problems from the current OECD initiative for the Discussion Draft on AG.

The Discussion Draft discusses the permanent establishments as depicted in Article 5(5) of the Report on BEPS Action 7 and comes after a mandate to offer guidance on the rules of Article 7 of the OECD Model Tax Convention (MTC) and their application to permanent establishments. The Draft also considers additional illustrations of the attribution of profits that would arise under Article 5 of the MTC, including instances related to the anti-fragmentation rules included in Article 5(4).  The Report maintains that modifications to Article 5 of the MTC do not require substantive modifications to the existing rules and guidance on the attribution of profits to permanent establishments in Article 7.