In view of the 2008 OECD Report on the Attribution of Profits to Permanent Establishments (PE) in which the OECD’s Committee on Fiscal Affairs provided extensive guidance on how the profits should be attributed to a PE under tax treaties following Article 7 of the Model Convention, KPMG’s Global Financial Services Tax Practice updated our previous survey of branch capital attribution produced in 2005. KPMG member firms in 33 countries provided details of domestic tax law and practice. This enabled an assessment of the degree of variation between the principles outlined in the OECD report and the current local position in the countries covered, while also seeking to identify what practical problems currently exist or may be anticipated. This year, the survey has been extended to cover branches of insurance companies in the participating countries, given the focus on branches following Solvency II.
Key points include:
- General acceptance of the OECD’s ‘separate entity’ and ‘arm’s length’ principles
- Resolution of profit/capital attribution mismatches
- Increased awareness of PE profit attribution
- Variance in PE capital attribution.