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OECD Releases Extra BEPS Action 7 Guidance

by Ulrika Lomas, Tax-News.com, Brussels

22 March 2018


On March 22, 2018, the OECD released additional guidance on the attribution of profits to permanent establishments, to add to its recommendations on base erosion and profit shifting (BEPS) Action 7.

In October 2015, as part of the final BEPS package, the OECD/G20 published the report on Preventing the Artificial Avoidance of Permanent Establishment Status. The Report recommended changes to the definition of permanent establishment (PE) in Article 5 of the OECD Model Tax Convention, which is used to determine whether a non-resident enterprise must pay income tax in another state. The report also recommended changes to prevent the use of certain common tax avoidance strategies that have been used to circumvent PE status.

The report also mandated the development of additional guidance on how the existing rules on attribution of profits to PEs under Article 7 would apply to PEs resulting from the changes recommended in the report, and in particular for PEs outside the financial sector. The newly released guidance also takes into account the recommendations put forward by the OECD on transfer pricing related topics, centered on aligning transfer pricing outcomes with value creation, in BEPS actions 8-10, the OECD said.

The new, additional guidance sets out high-level general principles, which countries agree are relevant and applicable in attributing profits to PEs in accordance with applicable treaty provisions. It also provides examples on the attribution of profits to certain types of PEs arising from the changes to the PE definition under BEPS Action 7, the OECD said.

TAGS: tax | tax avoidance | transfer pricing | G20 | Tax | BEPS

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