Transfer pricing

Attribution of Profits to a Permanent Establishment: Revised discussion draft for public comment


OECD releases a revised discussion draft of Part I (General) for public comment and provides progress report on Parts II-IV.

Release of Part I (General) for comment

Revised discussion draft for public comment by 28 September 2004

Part I was first released for public comment in February 2001 and a consultation involving more than 60 senior officials from OECD countries and some 60 representatives from the global business community was held in April 2002. A second consultation involving 80 business representatives and 40 senior tax officials was held in March 2004 on Parts II (Banking) and III (Global Trading) and many of the issues discussed were applicable to Part I.  Part I has now been revised in the light of the two consultations and comments are invited by no later than 28 September 2004.

The earlier version of Part I developed and tested a “Working Hypothesis” (WH) as to the preferred approach for attributing profits to a PE.  In the newly released version the testing of the WH is reaching its conclusion. Sufficient progress has been made in the development of the WH to mean that the WH has now become the authorised OECD approach. Before finalising the Reports, however, the OECD would like to give business one final opportunity to comment. 

The principles are now finalised but the OECD would welcome business input in the following areas:

  • factual corrections to ensure that the analysis reflects current business practice
  • identification of passages where the meaning is unclear, together with drafting suggestions to improve clarity
  • identification of areas where more guidance is needed on how to apply the principles in practice, again with drafting suggestions,
  • identification of transitional issues arising from the implementation of the authorised OECD approach, including suggestions as to how best to deal with them.

The transitional issues mentioned in the final bullet will not be dealt with in Part I itself but will be the subject of further work once the Report has been finalised. Comments received will be taken into account at that stage.

Written comments should be submitted no later than 28 September 2004 to give the Working Party the opportunity to consider them before its meeting of 25-29 October 2004 where it is looking to discuss and finalise the report taking into account the comments received. 

Progress Report on Parts II - IV

Following the Geneva consultation in March 2004 Part II (Banking) and Part III (Global Trading of Financial Instruments) are also essentially final in terms of principles, but representatives of the financial community are to be invited to complete the work of the Geneva consultation by making drafting suggestions and specific clarifications. Depending on the nature of these comments, a small group of financial sector commentators may be invited to attend part of the Steering Group's October 2004 meeting. The Working Party's objective is to discuss and finalise Parts II and III at the October 2004 meeting.

The sub group of the Steering Group on Insurance agreed at its most recent meeting that there were no issues that would impact upon the principles developed in Parts I-III of the Report.

Accordingly, the intention is that Parts I-III are to be finalised and released without the need to delay publication until the work on insurance is complete.  Work on Part IV (Insurance) continues and a draft is expected to be released in spring 2005.

The final versions of Part I-III are to be submitted for approval by the CFA in January 2005. Working Party No 1 will then focus on the paragraphs of the Model Commentary on Article 7 that might require change in order to implement the Report's conclusions, the nature of those changes and the possible implications of those changes for existing treaties (it is at this stage that business comments on transitional issues will be addressed).


Related Documents