Deloitte Partner Raises Detailed Concerns Over OECD's Proposed Permanent Establishment Threshold

Alison Lobb, a prominent partner at Deloitte specializing in transfer pricing, tax policy, and international tax, has voiced apprehensions regarding the OECD's proposed permanent establishment threshold for corporate income tax considerations. The proposal suggests that a non-resident enterprise would be deemed to establish a permanent presence in a state if it engages in relevant activities for over 30 days in that jurisdiction. Lobb, expressing reservations, highlighted potential complexities, practical challenges, and the imposition of additional compliance costs. She suggested that extending the standard period to 183 days could mitigate these challenges.

In response to the OECD's proposed changes to the commentary on Article 5 of the OECD Model Tax Convention, which addresses the definition of permanent establishment, Lobb underscored the practical implications for businesses that might fluctuate in and out of the tax jurisdiction scope based on service intervals. While the OECD's proposal aligns with the common choice in bilateral treaties, Lobb cautioned about its potential impact on businesses.

Lobb's detailed response emphasized the critical need to prevent disruptions to the treatment of underlying services for indirect tax purposes, particularly regarding VAT supply rules when adjusting permanent establishment thresholds. She recommended explicitly stating that any changes should apply exclusively for direct tax purposes. Furthermore, Lobb issued a caution against the expansion of short-term deemed permanent establishment services related to renewables, stressing the necessity for businesses to access government incentives for renewable investments without facing disproportionate compliance costs.

Expressing her support for a coordinated international approach to tax matters, Lobb highlighted its potential benefits for simplicity and cohesiveness. The OECD had invited public comments on the proposed changes in November, and Lobb's comprehensive response, dated January 4, was officially published by the OECD on January 22, providing a nuanced perspective on the potential implications of the proposed permanent establishment threshold.

By fLEXI tEAM