The OECD has released BEPS discussion drafts on attribution of profits to permanent establishments, which deals with work in relation to BEPS Action 7, and revised guidance on profit splits, which deals with work in relation to BEPS Actions 8-10.
Action 7 of the BEPS Action Plan mandates the development of changes to the definition of permanent establishment (PE) to prevent the artificial avoidance of PE status, including through the use of commissionaire arrangements and the specific activity exemptions. It also mandates that the work should address related profit attribution issues. This discussion draft presents the two fact-patterns that would particularly benefit from additional guidance concerning attributions of profits to permanent establishments PE, which are:
Action 8-10 provides guidance on the selection and application of the transactional profit split method as the most appropriate method. The transactional profit split method seeks to eliminate the effect on profits of special conditions made or imposed in a controlled transaction by determining the division of profits that independent enterprises would have expected to realize from engaging in the transaction or transactions. This draft sets out the text of proposed revised guidance on the application of the transactional profit split method, together with a number of questions.
Interested parties are invited to send comments on these discussion drafts by September 5, 2016. The OECD intends to hold a public consultation on these two discussion drafts on October 11-12, 2016 at the OECD Conference Centre in Paris, France.
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