On June 22, 2017 the OECD released a public discussion draft on additional guidance on attribution of profits to permanent establishments (Action 7 of the BEPS Action Plan (Preventing the Artificial Avoidance of Permanent Establishment Status)). The consultation period runs until September 15, 2017. Furthermore the OECD intends to hold a public consultation on the matter in November 2017.
The discussion draft sets out high-level general principles outlined in paragraph and for the attribution of profits to permanent establishments in the circumstances addressed by the Report on BEPS Action 7. In particular, the discussion draft covers permanent establishments arising from Article 5(5), including 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). It is important to note that, unlike the 2016 Discussion Draft, this discussion draft does not contain numerical examples; this is to avoid drawing conclusions from this guidance on the level of profitability of the intermediary or the permanent establishment. The profits of the intermediary and the permanent establishments should be determined under the relevant articles in the applicable tax treaty (i.e. Article 7 and, when applicable Article 9) based on the specific facts and circumstances of the case.
With respect to comments to be provided the OECD notes that 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, "Preventing the Artificial Avoidance of Permanent Establishment Status." Commentators should concentrate solely on the proposed guidance in this Discussion Draft on the application of Article 7 to determine the attribution of profits to PEs.
The discussion draft discusses a.o. the following subjects:
· Changes to Article 5(5) and 5(6) and the commentary
· Attribution of profits to permanent establishments resulting from changes to Article 5(5) and 5(6) and the commentary
o Administrative approaches to enhance simplification
o Examples illustrating the attribution of profits to deemed PEs under Article 5(5)
§ EXAMPLE 1: COMMISSIONNAIRE STRUCTURE (RELATED INTERMEDIARY)
§ EXAMPLE 2: SALE OF ADVERTISING ON A WEBSITE (RELATED INTERMEDIARY)
§ EXAMPLE 3: PROCUREMENT OF GOODS (RELATED INTERMEDIARY)
· Attribution of profits to permanent establishments resulting from changes to Article 5(4) and the Commentary
o EXAMPLE 4: WAREHOUSING, DELIVERY, MERCHANDISING AND INFORMATION COLLECTION ACTIVITIES
Click here to be forwarded to the Public Discussion Draft: “BEPS Action 7 - Additional Guidance on Attribution of Profits to Permanent Establishments” as released by the OECD on June 22, 2017.
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