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

The key advantage of a sales-based formula is that sales are far less responsive…

The most important advantages of this method are enumerated as follows:(47)…

 The ALP system is based on a mistaken view of the operation of multinational groups, so that the search for comparable” that the arm’s length system requires is incapable of producing useful result, and the resulting inability of either taxpayers or tax agencies to discern standards for enforcement means that enforcement is impossible. In the resulting uncertainty, firms find many ways to use accounting and legal techniques, particularly the licensing of intangibles, to shift income to zero- or low-tax countries in which the multinational groups perform little if any real economic activity.…

 Under the proposed system, tax liabilities are based on a multinational group’s global income, and the share that is taxed by a national jurisdiction depends on the fraction of the group’s observable economic activity that occurs in a particular country. There is no need for massive economic studies that try to “estimate” arm’s length prices in the absence of meaningful benchmarks. Thus, while a truly precise definition and measurement of economic value is likely unattainable, the proposed systems provide a reasonable, comparatively administrable, and conceptually satisfying compromise that suits the nature of the global economy,…