The 2006 OECD Report on attribution of profits to permanent establishments states that its recommendation “was not constrained by either the original intent or by the historical practice and interpretation of Article 7.” Moreover, the Report recommends a redrafting of both the Article itself and the Commentary. Given this, it seems appropriate to begin by asking: If we were working on a clean slate, what would be the best way to tax MNEs at source in the light of 21st century business practices?
The beginning point has to be that a modern MNE does not operate as if its constituent units, either subsidiaries or branches, deal with each other as if they were separate enterprises. Instead, a modern MNE is generally a single, unified enterprise, managed from a central location by managers who are responsible to their shareholders for the results of the MNE as a whole.
Date of this Version
Reuven S. Avi-Yonah and Kimberly A. Clausing, "Business Income (Article 7 OECD MC)" (September 2007). University of Michigan Program in Law and Economics Archive: 2003-2009. Working Paper 74.