Approaches to Attribution of Profits in International Corporate Permanent Establishments’ Taxable Separate Entities
Charles Lincoln, The Myth of the Separate Enterprise: Approaches to Attribution of Profits in International Corporate Permanent Establishments’ Taxable Separate Entities, 22 Trinity L. Rev. 30 (2017).
17 Pages Posted: 17 Feb 2017 Last revised: 2 Dec 2017
Date Written: February 17, 2017
When dealing with permanent establishments and attribution of profits, the OECD and UN Models create a fiction of a “separate and independent enterprise” or of a “distinct and separate enterprise.” However, each — all three — approach provides a different way for how to determine the internal profits and expenses between the enterprise and the PE. The Commentary of each respective approach further provides different ways for remunerating and attributing profits between the permanent establishment and the enterprise.
Dealings are the transactions between the head office and the PE. Because the permanent establishment is not a separate legal entity — the permanent establishment is just part of the enterprise — such transactions between the two are called “dealings.” Expenses can be deductible based on the rules set out in the OECD Commentary through tax treaties. It depends in what scenarios profits and expenses may be attributed to a PE. The ultimate “profits”/income that may be taxed by a permanent establishment by a source state are the profits attributed to the permanent establishment minus the expenses.
Keywords: International Tax Law, Tax, Permanent Establishments, Separate Entities, Law
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