July 1 2022 the State Secretary of Finance has issued updated guidance on the profit allocation to permanent establishments – Decree no. 16683. The purpose of the guidance is to clarify the way in which the Tax and Customs Administration assesses the profit allocation to permanent establishments. Attention is paid to the introduction of the object exemption in the Corporate Income Tax Act 1969 (Corporate Tax Act 1969) in 2012, a number of editorial changes have been made and references to other decrees and documents have been updated. Click here for Unofficial English translation Click here for other translation ... Read more

This chapter only covers transactions between associated enterprises in the context of Article 9 of the OECD Model Tax Convention and does not address the attribution of profits within a single enterprise on the basis of Article 7 of the OECD Model Tax Convention, as this is the subject of the Report on the Attribution of Profits to Permanent Establishments ... Read more

The case concerned a complex financing structure within the General Electric Group. The taxpayer, GE Financial Investments Ltd (GEFI Ltd), a UK resident company was the limited partner in a Delaware limited partnership, of which, GE Financial Investments Inc (GEFI Inc) a Delaware corporation was the general partner. GEFI Ltd filed UK company tax returns for FY 2003-2008 in which the company claimed a foreign tax credit for US federal income tax. In total, US federal income taxes amounted to $ 303 millions and exceeded the amount of tax due in the UK. The tax authorities opened an enquiry into each of GEFI’s company tax returns for the relevant period, and subsequently issued an assessment where the claims for foreign tax credits was denied in their entirety. Judgement of the Tax Tribunal The tribunal dismissed the appeal of GEFI Ltd and ruled that the UK company did not carry on business in the US. Hence GEFI Ltd was not entitled ... Read more

A UK PE of the Royal Bank of Canada had (through its Canadian head office) advanced loans of CAD $540 million in the early 1980s to Sulpetro Limited (“Sulpetro”), a Canadian company, to help fund the exploitation by its group of companies of rights to drill for oil, largely in the Buchan field of the North Sea. The Sulpetro group sold its interest in the Buchan oil field to the BP group in 1986, in exchange for various sums including an entitlement to contingent royalty payments on production from the oil field (linked to the excess of the market price of the oil in question above a benchmark level) (“the Payments”). Sulpetro was already in financial difficulties at the time of the sale to BP and ultimately went into receivership in 1993, by which time some Payments had started to be made due to the rise in oil prices. After the remainder of its assets were realised, Sulpetro still owed ... Read more

This chapter only covers transactions between associated enterprises in the context of Article 9 of the OECD Model Tax Convention and does not address the attribution of profits within a single enterprise on the basis of Article 7 of the OECD Model Tax Convention, as this is the subject of the Report on the Attribution of Profits to Permanent Establishments ... Read more

A & W AG, a company based in Germany, had maintained a permanent establishment in Austria which provided “distribution and support of software” services. No profits had been attributed to the Austrian permanent establishment. An assessment was issued where profits for FY 1998 to 2002 had been determined by the tax authorities using the cost plus method with a mark up of 9.5% to 7.5% for the years 1998 to 2002. A & W AG appealed against the tax assessments and argued that a mark up of 2% would be more appropriate. The Administrative Court of Appeal remanded the case to the Unabhängiger Finanzsenat. Judgement of the UFS The UFS decided predominantly in favour of A & W AG. The tax office explained that, based on empirical values ​​and relevant literature, mark up rates of between 5% and 15% should be regarded as customary. The mere reference to these empirical values ​​did not convince the UFS, since the facts to ... Read more

A & W AG, a company based in Germany, had maintained a permanent establishment in Austria which provided “distribution and support of software” services. No profits had been attributed to the Austrian permanent establishment. An assessment was issued where profits for FY 1998 to 2002 had been determined by the tax authorities using the cost plus method with a mark up of 9.5% to 7.5% for the years 1998 to 2002. A & W AG appealed against the tax assessments and argued that a mark up of 2% would be more appropriate. Judgement of the Court The Administrative Court of Appeal found the mark up determined by the tax authorities to be incomprehensible. The tax authority would have had to justify the mark-ups, for example by submitting specific empirical values ​​from comparable companies. The case was remanded to the court of first instance, where in a decision of April 28, 2010 ( RV/3837-W/09 ), a cost mark-up of 2% was ... Read more