Tax treaties

OECD releases a discussion draft on the definition of “permanent establishment” in the OECD Model Tax Convention


12 October 2011 -The OECD Committee on Fiscal Affairs invites public comments on proposed changes to the Commentary on Article 5 (Permanent Establishment) of the OECD Model Tax Convention.


Article 5 of the OECD Model Tax Convention includes the definition of the treaty concept of permanent establishment, which is primarily used for the purpose of the allocation of taxing rights when an enterprise of one State derives business profits from another State.


Despite the long history of the concept of permanent establishment, its practical application raises a number of issues. The Committee on Fiscal Affairs, through a subgroup of its Working Party 1 on Tax Conventions and Related Questions, has examined various questions related to the interpretation and application of that definition.


This public discussion draft includes proposals for additions and changes to the Commentary on Article 5 of the OECD Model Tax Convention resulting from the work of that subgroup which have recently been presented to the Working Party for discussion. Given the practical importance of these proposals, the Committee has decided to invite public comments on the proposed changes before they are thoroughly discussed by the Working Party at its meeting at the end of February 2012.


The proposed changes appear in the order of the paragraphs of the current Commentary on Article 5 to which they relate. The Annex includes a consolidated version of paragraphs 1 to 35 of the Commentary on Article 5 that includes all the proposed changes.


This document is a discussion draft released for the purpose of inviting comments from interested parties on the proposals prepared by a working group. It reflects the majority views in the group on some issues on which there was no consensus. Given the preliminary nature of the proposals, this document does not necessarily reflect the final views of the OECD and its member countries.


The Committee intends to ask the Working Party to examine these proposed additions and changes to the OECD Model Tax Convention for possible inclusion through the next update, which is currently scheduled for 2014. It therefore invites interested parties to send their comments on this discussion draft before 10 February 2012. These comments will be examined at the next meeting of the Working Party. It is also intended that Working Party 6 on the Taxation of Multinational Enterprises will be invited to consider any potential issue related to Article 7 that may arise from the proposals included in the discussion draft.


Comments on these proposed changes should be sent electronically (in Word format) to Grace Perez-Navarro, Deputy Director, CTPA (


Unless otherwise requested at the time of submission, comments submitted to the OECD in response to this invitation will be posted on the OECD website.


Related Documents