On 22 March 2018, the OECD released the report Additional Guidance on the Attribution of Profits to Permanent Establishments (BEPS Action 7).
This report contains additional guidance on the attribution of profits to permanent establishments resulting from the changes to the definition of permanent establishment in the Report on BEPS Action 7 to Article 5 of the OECD Model Tax Convention (MTC). The report only sets out high-level general principles, together with examples on the attribution of profits to certain types of permanent establishments.
Of particular importance is the scenario where both Article 9 and Article 7 of the MTC come into play in determining the total amount of profits to be taxed. Although the report does not explicitly state whether a profit adjustment under Article 9 (based on the arm’s length principle) should precede the attribution of profits under Article 7, it does apply this rule order in the examples mentioned. In any case, the order in which Article 7 and Article 9 are applied should not impact the result. The report indicates that double taxation should be avoided at all times regardless in which order Article 7 or Article 9 is applied.
Further insights in the report and the implications for your organisation will follow. In the meantime, please contact your local PwC contact or Jonas Van de Gucht for any questions.