OECD approach to PEs: When arm’s length agent compensation is enough
December 16, 2008
On July 17, the OECD issued its final report on the attribution of profits to permanent establishments, reaffirming the “separate entity approach” that hypothesises a permanent establishment (PE) as a separate and distinct enterprise that may deserve additional compensation according to the arm’s-length principle. The report notes, say Brandon Feldman and Patrick Breslin of the Ballentine Barbera Group, that the OECD transfer pricing guidelines should apply in such cases.
On August 22, the Mumbai High Court in India ruled that a dependent agent PE of Sony Entertainment Television (SET) Satellite will not be taxed in India. In effect, the court’s ruling reflects the “single taxpayer” approach to compensating a PE, an approach that was rejected in the OECD report, though it had been espoused by taxpayers.
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