Germany

Ulf Andresen*

Regulations Provide Further Guidance on the
Application of the Authorized OECD Approach to the Attribution of Profit to Permanent
Establishments
The author considers the recently issued
Regulations on the application of the authorized
OECD approach under existing German tax treaties, specifically for the allocation of profit to permanent establishments.
1. 
Permanent Establishment Profit Attribution
Regulations Issued
On 13 October 2014, the Upper House (Bundesrat) adopted the “Regulations on the Application of the
Arm’ s Length Principle on Permanent Establishments in accordance with section 1(5) of the Foreign Tax Act (Aussensteuergesetz)” (Permanent Establishment (PE) Profit
Attribution Regulations) (the Regulations).1 These Regulations were drafted by the Ministry of Finance and were adopted by the Upper House based on the delegated power in section 1(6) of the Foreign Tax Act granted by the parliament (Bundestag). The Regulations have the quality of law and, thus, are binding on taxpayers, the tax administration and the tax courts in Germany. They provide the long-awaited guidance for taxpayers on how they should apply, in practice, the authorized OECD approach under section 1(5) of the Foreign Tax Act, which is effective in Germany for all financial years commencing after 31
December 2012. The rules in the Regulations are effective for financial years starting after 31 December 2014.
For taxpayers, this means that they must apply the authorized OECD approach from 2013, but must abide by the fairly prescriptive rules in the Regulations only as from
2015. Thus, taxpayers should invest time in their profit allocation of their permanent establishments in Germany and the documentation thereof in 2015 to prepare for the subsequent years.
At the same time, the application of the authorized OECD
approach