The OECD has recently released two new consultations.
As part of its base erosion and profit shifting (BEPS) initiative, the OECD's first discussion draft address the attribution of profits to permanent establishments under Action 7. The second discussion draft revises existing guidance on profit splits under Actions 8-10 of the OECD's BEPS Action Plan, and replaces earlier drafts that were released in 2016. The OECD invites public comments on the new discussion drafts by September 15, 2017.
Profits Attributed to Permanent Establishments - BEPS Action 7 discussion draft
BEPS Action 7 calls for the development of changes to the definition of "permanent establishment" (PE), to address situations where a company does business in a jurisdiction without its profits being taxed there (or anywhere). This discussion draft sets out guidance concerning the attribution of profits to PEs, and takes recent changes to the transfer pricing guidelines into account, as set out in Action 7.
This new discussion draft replaces an earlier 2016 version and sets out high-level general principles for the attribution of profits to PEs in the circumstances addressed by the report on BEPS Action 7. The new discussion draft also includes examples illustrating the attribution of profits to PEs arising under Article 5(5) and from the anti-fragmentation rules in Article 5(4.1) of the OECD Model Tax Convention.
Profit Splits - BEPS Actions 8-10 discussion draft
This discussion draft concerns the use of "transactional profit splits" method of transfer pricing within global value chains, and is a follow-up on work done in BEPS Actions 8-10, Aligning Transfer Pricing Outcomes with Value Creation.
The new discussion draft on profit splits follows an earlier 2016 discussion draft and proposes revised guidance on the application of the transactional profit split method. Specifically, it is intended to clarify the application of the transactional profit split method, by identifying when this is the most appropriate transfer pricing method and by providing additional guidance on determining the approaches for how the profits are to be split and on specific measures of profits to be split. The revised draft also includes a number of examples illustrating these principles. The draft identifies a number of issues relating to the application of the profit split method on which it is specifically seeking feedback.
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