Article 7 of the OECD Model : defining the personality of permanent establishments

This article examines the taxation of permanent establishments under Art. 7 of the OECD Model Tax Convention. The article first looks at how Art. 7 attributes business profits to permanent establishments, i.e. the host country of a permanent establishment of an international enterprise has the right to tax the permanent establishment's business profits. The discussion demonstrates the use of the separate entity and single entity methods in interpreting Art. 7. The article also examines the separate entity method in Art. 7(2) and the interaction between Arts. 7(1) and (2) in allocating profits to a permanent establishment. The article then considers Art. 7(3) and the extent to which it prescribes the single entity approach for allocating expenses to a permanent establishment. The article concludes with an examination of the interaction between Arts. 7(2) and (3).