U.S., Belgian Competent Authorities Agree to Authorized OECD Approach to PE Profits

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The United States and Belgium have agreed to attribute profits to permanent establishments consistent with the approach in the Organization for Economic Cooperation and Development's 2010 Model Tax Convention, according to an agreement made public Aug. 6.
The competent authority agreement, signed by Internal Revenue Service Deputy Commissioner (International) Michael Danilack June 17 and by the Belgian competent authority July 16, said the governments would use the “authorized OECD approach,” or AOA, to attribute profits to a PE. The AOA in turn requires taking a “functionally separate entity” approach to profit attribution, meaning that profits can be established for a PE regardless of whether the enterprise as a whole shows a profit or loss.
The agreement applies to taxable years that begin on or after Jan. 1, 2013. Taxpayers may choose to apply the agreement in a contracting state for all taxable years beginning after Dec. 31, 2008, IRS said.
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