The Permanent Establishment Issue Of Digital Economy And Profit Attribution To The Permanent Establishment

Amount A – A share of residual profit allocated to market jurisdictions using a formulaic approach applied at an MNE group (or business line) level. The residual profit used for Amount A will be the result of simplifying conventions agreed on a consensual basis. This new taxing right can apply irrespective of the existence of physical presence, especially for automated digital services. It reflects profits associated with the active and sustained participation of a business in the economy of a market jurisdiction, through activities in, or remotely directed at that jurisdiction, and therefore constitutes the primary response of the unified approach to the tax challenges of the digitalisation of the economy.

Amount B – A fixed remuneration based on the ALP for defined baseline distribution and marketing functions that take place in the market jurisdiction.…

Amount C – The return under Amount C covers any additional profit where in-country functions exceed the baseline activity compensated under Amount B. A further aspect of Amount C is the emphasis it gives to the need for improved dispute resolution processes. The scope of Amount C is still being discussed and considered as a critical element in reaching an overall agreement on Pillar One.…