Peter Barnes Talks to Law360: OECD Profit Attribution Guidelines for Multinational Companies

The Organization for Economic Cooperation and Development issued guidelines Thursday that draw on public input as to how multinational companies should attribute profits to permanent establishments, focusing on warehousing, procurement and certain outsourcing contracts as part of its effort to prevent tax avoidance.

Peter Barnes, a senior fellow at Duke University School of Law, told Law360 that the OECD guidance on profit attribution has to be considered in conjunction with recent reports from the organization and the European Union on taxation of the digital economy. In its report, the OECD acknowledged divisions among nations that have signed onto a pending BEPS treaty as to how online commerce should be valued and taxed, while the EU suggested a possible 3 percent tax on revenue from digital activity.

“If I export to you a book, we would never say the value creation was where that customer was based, but the [digital economy] report says broadly, where the customer exists is part of the value creation,” Barnes said. “The PE stuff can't be read in isolation, and we have to decide how much of value creation is the customer base. The historic view of PE profit attribution hasn't considered customer location as part of the reason to attribute profit.”

Mr. Barnes is also Of Counsel to Caplin & Drysdale’s International Tax and Tax Controversies practice groups.

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Excerpt taken from the article “OECD Adds Guidance on Transfer-Pricing Taxation” by Joseph Boris for Law360.