On 22 March, the OECD released a final report containing additional guidance on attribution of profits to permanent establishments (the Report). The Report sets forth high-level principles for attributing profits to permanent establishments (PEs), following the two discussion drafts published in July 2016 and June 2017 and public discussions held in November 2016 and November 2017. The Report provides further guidance on the Final Reports on Base Erosion and Profit Shifting (BEPS) published in October 2015.
The new additional guidance indicates that the high-level principles should apply regardless of whether the countries involved have adopted the principles of the Authorised OECD Approach (AOA) to attributing profits to PEs. It addresses issues surrounding commissionaire structures and the anti-fragmentation rules covered in the report on BEPS Action 7 issued on 5 October 2015 and under the Multilateral Instrument (MLI).
The Report contains examples on fragmentation of activities, commissionaire structures, sales of advertising on a website, and procurements of goods. All four examples seek to illustrate the underlying principles of profit attribution, without providing details on the actual calculations of these profits. The starting point of the examples is the AOA, recognising that its use is not required by many treaties and the method for attributing profit therefore may differ significantly from the AOA.
In general, while offering some helpful and welcome views, the Report is limited to providing high-level guidance. PwC thus recognises there are issues left unresolved or that would benefit from clarification.
Read more in our Insights article from Transfer Pricing