This report contains additional guidance on the attribution of profits to permanent establishments resulting from the changes in the Report on BEPS Action 7 to Article 5 of the OECD Model Tax Convention. This additional guidance sets out high-level general principles for the attribution of profits to permanent establishments arising under Article 5(5), in accordance with applicable treaty provisions, and includes 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).
This report responds to the mandate in the 2015 BEPS Action 7 report on Preventing the Artificial Avoidance of Permanent Establishment Status to develop additional guidance on how the existing rules of Article 7 of the OECD Model Tax Convention would apply to permanent establishments resulting from the changes to the definition of permanent establishment in Article 5 of the OECD Model Tax Convention (in particular for PEs outside the financial sector), taking into account the revised guidance contained in the 2015 BEPS Actions 8-10 report on Aligning Transfer Pricing Outcomes with Value Creation.
The guidance focuses on high-level general principles which are are found by countries relevant and applicable in attributing profits to permanent establishments in accordance with applicable treaty provisions. The report provides examples on the attribution of profits to certain types of permanent establishments arising from the changes to Article 5(4) and Article 5(5) under BEPS Action 7.