In my scientific writing I will write about the attribution of profits to Permanent Establishments in accordance with the updated OECD Model Tax Convention and the OECD Report on the attribution of profits to Permanent Establishments in the Versions of 2008 and 2010.
First I will start with the definition of the Permanent Establishment in the German law and according to the OECD Model Tax Convention.
Afterwards I will continue with the allocation of Profits to the Permanent Establishment by the two step analysis and the different transfer price methods. Additionally I will write about the hypothetical independent enterprises and special regulations for Banks, the trading of financial instruments and Insurance companies.
Table of Contents
1. Introduction
2. Definition of the Permanent Establishment
2.1 Definition according to Section 12 of the German Fiscal Code
2.2 Definition according to Article 5 OECD Model Tax Convention
2.3 Permanent Establishment in the Double Taxation Agreement beween Germany and Great Britain
3. The Authorised OECD Approach
3.1 The Two Step Analysis for the Permanent Establishment a Hypothetical Independent Enterprise
3.1.1 Analysis of the functions
3.1.2 Attribution of Assets, Risks and Capital under the OECD Approach
3.1.2.1 Attribution of Assets
3.1.2.2 Attribution of Risks
3.1.2.3 Attribution of Capital
3.1.3 Determination of the profit of the hypothetical independent Permanent Establishment (Selbstständigkeitsfiktion) as the second step
3.1.4 Summary of the two Step Analysis
3.2 The Tax Balance Sheet for the Permanent Establishment
3.2.1 Tangible Assets
3.2.2 Intangible Assets
3.3 Transfer Prices between the Mother Company and the Permanent Establishment
3.3.1 Transfer Price Methods
3.3.1.1 Comparable Uncontrolled Price Method
3.3.1.2 Resale Price Method
3.3.1.3 Cost-Plus Method
3.3.1.4 Transactional Net Margin Method
3.3.1.5 Transactional Profit Split Method
3.3.2 Comparability analysis
3.4 Special Regulations for PE’s of Banks
3.5 Special Regulations for the Trading of Financial Instruments
3.6 Special Regulations for PE’s of Insurance Companies
4. Attribution of Profits to Permanent Establishments in the OECD Model Tax Convention
4.1 Article 7 of the OECD Model Tax Convention
4.2 Profit allocation according to Article 7 of the OECD Model Tax Convention
5. The Authorised OECD Approach in the German Law
5.1 Status Qou of the Profit and Asset Determination
5.2 Change of the Foreign Relation Tax Act
6. Summary
Objectives and Topics
This work examines the attribution of profits to permanent establishments in accordance with the OECD Model Tax Convention, analyzing the transition from theoretical concepts to practical tax law application in Germany.
- Definitions of permanent establishments across German and international tax law.
- The Authorized OECD Approach and the hypothetical independent enterprise model.
- Transfer pricing methodologies and their application to profit allocation.
- Specific regulatory frameworks for banks and insurance companies.
- The integration of OECD guidelines into German domestic tax legislation.
Excerpt from the Book
3.3.1.3 Cost-Plus Method
When you apply the cost-plus method then you start the calculation with the costs of the good and add a mark-up on the costs which could be regarded as profit. The sum of the calculation can be regarded as an arm’s length price, when the mark-up on costs is comparable to the mark-up which is earned by transactions between the company and a third party. The mark-up on costs can be different due to the risks and functions performed, exchange rate risks, amount of soled goods and trade discounts.
The cost-plus method can be used for unfinished goods which are sold between affiliated companies.
Example:
Production costs: 100,000.00 €
+ Mark-up on costs (23%): 23,000.00 €
-----------------------------------------------------------------
= Transfer price: 123,000.00 €
Summary of Chapters
1 Introduction: Provides an overview of the scope of the thesis, focusing on the attribution of profits to permanent establishments under OECD guidelines and German law.
2 Definition of the Permanent Establishment: Analyzes various legal definitions of a permanent establishment, including German fiscal codes and international tax agreements.
3 The Authorised OECD Approach: Explains the two-step analysis process, asset and risk attribution, and the application of transfer pricing methods for profit calculation.
4 Attribution of Profits to Permanent Establishments in the OECD Model Tax Convention: Focuses on the legal interpretation of Article 7 and its implications for avoiding double taxation.
5 The Authorised OECD Approach in the German Law: Discusses the status of profit and asset determination within German jurisdiction and upcoming changes to the Foreign Relation Tax Act.
6 Summary: Concludes the analysis by emphasizing the importance of international cooperation in profit allocation to prevent double taxation.
Keywords
Permanent Establishment, OECD Model Tax Convention, Profit Attribution, Arm's Length Principle, Transfer Pricing, Functional Analysis, Authorized OECD Approach, Tax Law, Double Taxation, Hypothetical Independent Enterprise, Asset Attribution, Risk Management, German Fiscal Code, Foreign Relation Tax Act, Financial Instruments.
Frequently Asked Questions
What is the core subject of this publication?
The work focuses on the principles and methodologies for attributing profits to permanent establishments, primarily following the standards set by the OECD Model Tax Convention.
Which thematic areas are central to this work?
The central themes include legal definitions of permanent establishments, the application of transfer pricing, functional and factual analyses, and the implementation of these rules within the German tax system.
What is the primary objective of the study?
The main objective is to provide a comprehensive analysis of how profits should be allocated to a permanent establishment as if it were a separate, independent enterprise.
Which scientific methods are employed?
The author employs an analytical review of legal texts, international tax guidelines (OECD), and national legislation, supplemented by the application of transfer pricing calculation models.
What is covered in the main section?
The main section details the "Authorized OECD Approach," including the two-step analysis, tax balance sheet recording for tangible and intangible assets, and specific transfer price methods like the CUP or Cost-Plus methods.
Which keywords define this research?
Key research concepts include Permanent Establishment, Arm's Length Principle, OECD Model Tax Convention, and Profit Attribution.
How is the "KERT" function relevant to the OECD approach?
The Key Entrepreneurial Risk-Taking (KERT) function is critical for specialized industries like banking and insurance, as it determines profit based on the interaction between risks and financial assets.
How does the work address the issue of potential double taxation?
The work highlights that while the OECD framework aims to prevent double taxation, conflicts between tax authorities regarding adjustment amounts can still lead to double taxation if a consensus is not reached.
- Arbeit zitieren
- Thomas Eulenpesch (Autor:in), 2012, Attribution of Profits to Permanent Establishments in the OECD-View, München, GRIN Verlag, https://www.hausarbeiten.de/document/200756
