OECD Considers ‘Plan B’ for Profit Attribution Guidance

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By Benjamin Stupples

Oct. 13 — The OECD is reviewing alternative plans on guidance for attribution of profits to permanent establishments amid “fundamental” differences of opinion within its transfer pricing working party.

The Organization for Economic Cooperation and Development is looking at a “plan B” in case the transfer pricing working party doesn’t reach a consensus on the guidance for multinational companies on profit attribution before the deadline set for the end of this year, Melinda Brown, an OECD transfer pricing adviser, told Bloomberg BNA in an Oct. 13 interview.

“We’re aware that there’s a problem, and we’re trying to find a solution,” she said following the morning session of the Mazars International Tax Conference in London, at which panelists discussed life after BEPS and how the International Monetary Fund, European Commission, OECD and United Nations are shaping the future of international tax policy in 2016-17.

“The potential options would be administrative solutions, or what sort of limited guidance we could give, so that we can have something even if we can’t manage,” said Brown, declining to comment further.

The comments come the day after the OECD’s Oct. 11-12 public consultation in Paris on the attribution of profits to a permanent establishment and the use of profit split methods—among the incomplete items under its 15-action plan to combat tax base erosion and profit shifting—following the publication of a July 4 discussion draft on the two matters.

At the Paris gathering, Hans van Egdom—a transfer pricing specialist with the Dutch Tax Administration and co-chair of the OECD’s transfer pricing working party who chaired the Oct. 11 discussions—said the OECD may produce another draft on PE profit attribution. The working party’s delegates will meet next month to discuss whether it’s needed, he said.

Action 7

The attribution of profits to a PE is incorporated under Action 7 of BEPS, which seeks to change the definition of permanent establishment—a fixed place of business for multinational corporations outside their home country—in order to prevent businesses from using tax strategies that exploit the existing definition.

Countries wanting to adopt the new PE definition will be able do so through the 15th and final BEPS action, a multilateral legal instrument that will be available for signature by Dec. 31, 2016, according to the OECD.

With fewer than three months remaining before countries sign the multilateral instrument, the time frame for a consensus on attribution of profits to a PE is the “highest pressure point” for the OECD’s transfer pricing team, Brown told Bloomberg BNA. Guidance on profit splits is a far less divisive issue within the working party than PE profit attribution, she added.

“With profit splits, actually within the working party, we don’t have as wide a range of views as with profit attribution, which has more fundamental” differences of opinion, she said. “That’s the trickier one for us, as the issues go deeper and we have less time.”

The OECD released the comments on its July 4 discussion draft on the attribution of profits to PEs on Sept. 8—just over a month before the public consultation in Paris, which saw businesses, tax advisers and civil societies give their views on both the profit split and PE drafts.

The Business and Advisory Committee, which represents more than 80 business groups from across the globe, said the OECD’s discussion draft seems to “fully recognize” the complexities of profit attribution in a post-BEPS environment and leaves multinationals facing uncertainty over their tax planning.

The Silicon Valley Tax Directors Group, which counts Amazon Inc. and Apple Inc. among its members, said the authorized OECD approach (AOA) for profit attribution to permanent establishments should align more with the latest guidelines for transfer pricing.

“I know the BEPS project itself has officially finished, but I think it’s been described as really only the end of the beginning,” Brown told tax practitioners at the conference.

“Let’s hope it’s not the beginning of the end, especially in the case of transfer pricing.”

To contact the reporter on this story: Benjamin Stupples in London at bstupples@bna.com

To contact the editor responsible for this story: Penny Sukhraj at psukhraj@bna.com

For More Information

The complete list of the OECD’s 15 BEPS Actions is at: http://www.oecd.org/ctp/beps-actions.htm

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