The original OECD Profit Attribution report relied on the AOA, with an additional conceptual stretch, to move assets and taxable income into the PE. That was an issue since most treaties do not adopt the AOA. The new report addresses this issue and states that the examples are governed by the AOA and that “the attribution of profits to a PE in any particular case will be governed by the applicable tax treaty.” The report states that “the examples should not be understood as representing the only appropriate approach to attributing profits to a PE.” This clarification is helpful.
The OECD released additional guidance March 22 on the attribution of profits to a permanent establishment under action 7 of the base erosion and profit-shifting project. The OECD released a similar discussion draft a few months ago. (See our August 2017 column: Tax Notes Int’l, Aug. 7, 2017, p. 571.) The only substantive change in the additional guidance is that the OECD clarified the application of the authorized OECD approach (“the AOA,” as contained in article 7 of the 2010 version of the OECD model).