OECD to consider potential expansion of the definition of a permanent establishment (PE)

Fri 22 Sep 2017

Reports from the International Fiscal Association congress held in August in Brazil this year indicate that the OECD will be considering expanding the PE definition to that it includes something that would track the digital presence of a company. Pascal Saint-Amans also indicated the OECD would look at profit attribution rules and possible interim measures such as an alternative tax on e-sales (ALES).

There appears to be a divergence of views from major jurisdictions at present which would make any interim solution difficult to achieve, so this may well be a long term project. Certain jurisdictions have criticised the OECD’s rules on attribution of profits and transfer pricing, as being too heavily focussed on supply side factors and taking inadequate consideration of demand side factors.  India’s introduction of a 6% equalisation levy in June 2016, imposing a withholding tax on outbound advertising payments when there isn’t a PE, is an example of that country’s response to the lack of any interim agreement on taxation of the digital economy.

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