Netherlands : allocation of assets to a permanent establishment and the OECD discussion drafts

Art. 7(2) of the OECD Model Tax Convention explains how profits are to be allocated to a permanent establishment (PE): profits must be allocated to a PE as if it operates as an independent enterprise. The directive given in Art. 7(2) is two-pronged: (a) construing a hypothesized distinct and separate enterprise and determining the assets and liabilities to be attributed to that enterprise, and (b) allocating the profits to the PE with due regard to the transactions (dealings) between the head office and the PE. This article focuses on the first step in the process and discusses how the term "attributable" as used in Art. 7 of the OECD Model is applied in the Netherlands. Specifically, the article looks at the criteria used by the Netherlands judiciary to attribute assets to a PE and compares the Dutch allocation method with the method advocated by the OECD.