The Use of the OECD Commentary
Elgar Tax Law and Practice series
Chapter 4: BUSINESS PROFITS AND ASSOCIATED ENTERPRISES (ARTT. 7 AND 9)
The taxation of business profits within the treaty is organized in two main provisions: on the one hand, Art. 5 defines the concept of PE but does not itself allocate taxing rights, on the other hand, Art. 7 allocates taxing rights with respect to business profits of an enterprise of a CS attributable to a PE. Art. 7 is based on the separate entity and arm’s length principles and has been subject to considerable variations in interpretation. Starting from a lack of a common interpretation, the 1984 report and the 1993 report ‘Attribution of Income to PEs’ eventually lead in 2008 to the report ‘Attribution of Profits to PEs’ (‘2008 Report’), and a new version of Art. 7 appeared in Model 2010, while a revised version of 2008 was adopted in 2010 (‘2010 Report’). The current version of Art. 7 reflects the approach developed in the 2010 Report and must be interpreted in light of the guidance contained in it. Art. 7 § 1 provides that profits of an enterprise of a CS shall be taxable only in the RC unless the enterprise carries on business in the SC through a PE situated therein. If the enterprise carries on business as aforesaid, the profits that are attributable to the PE in accordance with Art. 7 § 2 may be taxed in the SC (Art. 7 § 1). An additional problem is the non discrimination in the SC of PEs of foreign enterprises (see infra at paras 13.64–13.92). The first
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