Call for clarity and calm: TEI urges OECD to vivify permanent establishment rules: Canadian liaison meetings, support for Internet tax moratorium highlight TEI's fall activities.

• Position: Recent Activities

While the tax legislative agenda was full this fall--with major bills actively considered on international reform and job creation, energy, and the Internet--Congress ultimately adjourned for the session without taking any significant action in the tax area. Thus, proposals as far-ranging as FSC/ETI, tax shelters and penalties, requiring CEOs to sign federal tax returns, and making the Internet tax moratorium permanent remain unresolved and will be revisited in 2004. During the past few weeks, however, Tax Executives Institute not only monitored and addressed key legislative issues, but also submitted comments to tax authorities in Ottawa, Quebec, Toronto, and the Organisation for Economic Cooperation and Development.

Permanent Establishment Rules

TEI completed work on a major project that was coordinated by the Institute's European Chapter. On October 17, TEI filed comments with the OECD on the definition of permanent establishment under the OECD Model Tax Treaty. The submission was prompted by a 2002 decision by the Italian Supreme Court in the Ministry of Finance (Tax Office) v. Philip Morris (GmbH) case on definitional issues previously thought to have been well settled. In its submission, TEI contended that the principles advanced by the Italian Supreme Court run contrary to the generally accepted understanding of Article 5 of the Model Treaty and its Commentary, and hence urged the OECD to clarify the rules.

TEI President Raymond G. Rossi commended the European Chapter and International Tax Committee for their work, saying "This is an important issue for our members and their employers. The Model Treaty undergirds hundreds of treaties relied on in global business. The Philip Morris decision threatens to undermine longstanding PE rules that guard against double taxation. By undertaking this project, the European Chapter demonstrated the breadth, depth, and maturity of TEI as an advocacy organization, and it did a service to the business community at large."

In urging the OECD to clarify the PE rules, TEI's submission stressed that the Model Treaty reflects a multinational consensus on the rules regarding jurisdiction to tax cross-border profits, the crux of which is requiring a permanent establishment in the jurisdiction seeking to impose a tax. The principles enable businesses to operate with confidence that a single level of tax will apply to their revenue. Uncertainty erodes this confidence and should be minimized, especially where...