Summary of the proceedings of an invitational seminar on the attribution of profits to permanent establishments

In February 2001, the OECD issued a discussion paper on the attribution of profits to permanent establishments (PE) in an attempt to achieve a consensus among the member countries of the OECD. The discussion paper advances a working hypothesis to govern the attribution of profits to PEs under article 7, namely, that the OECD transfer pricing guidelines should be applied to PEs to the maximum extent possible by analogizing PEs to separate legal entities. A group of Canadian government officials, tax practitioners and academics met on June 22, 2001, to consider the OECD discussion paper and to provide constructive comments. Virtually all of the seminar participants agreed on the following: 1. The working hypothesis represents the correct approach. 2. The concept of dealings between a PE and other parts of an enterprise should be clarified. 3. Taxpayers should be required to document contemporaneously the intended dealings of a PE for purposes of computing its income.