Tei comments on clarification of PE definition: June 7, 2004.

• Position: Tax Executives Institute, permanent establishment

On June 7, 2004, TEI President Raymond G. Rossi sent the following letter to Jeffrey Owens, Head of the OECD's Centre for Tax Policy and Administration concerning the proposed clarifications of the definition of permanent establishment under the OECD's Model Tax Convention. The comments supplement TEI's October 17, 2003, comments, which were reprinted in the November-December 2003 issue of The Tax Executive.

On behalf of Tax Executives Institute, I am pleased to respond to the request of the Working Party No. 1 on Tax Conventions and Related Questions for comments on proposed clarifications in the Commentary to the OECD Model Tax Convention on some aspects of the permanent establishment (PE) concept, which were published on 12 April 2004, and would specifically include in the Commentary some widely accepted interpretations of the concept held by the business community. This letter supplements TEI's 17 October 2003, comments on the same issue. TEI applauds the Working Party for seeking clarification of the PE definition. For the reasons set forth below, we urge the OECD to move swiftly toward adoption of the recommendations.

Background

Founded in 1944 as a non-profit organization in the United States to serve the professional needs of business tax professionals, TEI now has an international scope with 53 chapters spread throughout North America and Europe. Our 5,400 members represent 2,800 of the largest companies in the United States, Canada, and Europe. TEI represents a cross-section of the business community; it is dedicated to the development and effective implementation of sound tax policy, to promoting the uniform and equitable enforcement of the tax laws, and to reducing the cost and burden of administration and compliance to the benefit of taxpayers and governments alike. As a professional association, TEI is firmly committed to maintaining tax systems that are administrable and with which taxpayers can comply.

The majority of TEI members work for multinational companies with substantial international operations and sales. Members of TEI are responsible for managing the tax affairs of their companies and must contend daily with the provisions of the various tax laws relating to the operation of business enterprises. Consequently, TEI members have a special interest in the PE definition in the OECD Model Tax Convention on Income and on Capital.

Article 5's Definition Of Permanent Establishment

Article 5 of the Model Treaty defines a...