On 17 July 2008, the OECD Council approved the contents of the 2008update to the OECD Model Convention. This followed the earlier approval of the update by the Committee on Fiscal Affairs at its meeting of 24-25 June 2008.
Although most of the changes included in the update had previously been released for public comments, the update itself was also released as a discussion draft in April 2008.
The CFA carefully examined the comments received on that discussion draft, and concluded after extensive review of these comments that no major additional changes should be made to the update as a result of these comments. It did, however, agree that a number of useful clarifying changes were proposed and that these should be included in the update.
The CFA also released a detailed response to the comments received.
OECD releases final Report on Attribution of Profits to Permanent Establishments
On 17 July 2008, the OECD Council approved the release of the final version of the Report on the Attribution of Profits to Establishments. This followed the earlier approval of the Report by the Committee on Fiscal Affairs at its meeting of 24-25 June 2008.
The Report provides guidance on the principles for attributing profits to a PE under Art. 7 of the OECD Model Tax Convention (the Authorized OECD Approach).
The Report includes a preface and four parts. Part I sets out the general considerations for attributing profits to PEs, regardless of the business sector in which they operate. It describes a two-step approach in which the PE first is deemed as a "functionally separate entity" from the rest of the enterprise of which it is a part. In the second step, the profits of the PE are determined by reference to the OECD Transfer Pricing Guidelines.
The last three Parts of the Report elaborate upon the application of this approach to PEs of enterprises operating in the financial sector:
|-||Part II describes the application of the approach to enterprises carrying on a banking business through a PE.|
|-||Part III addresses the situation of PEs of enterprises carrying on global trading in financial instruments.|
|-||Part IV deals with the application of the approach to PEs of enterprises carrying on insurance activities.|
This final Report replaces all previous drafts of the various Parts, including the interim version of Parts I, II and III published in December 2006, and the discussion draft of Part IV published in August 2007 (see respectively