Profit Attribution

SouthViews No. 191, 13 March 2020

India and recent updates on the OECD/G20 Inclusive Framework’s Two-Pillar Approach

By Subhash Jangala

The Organisation for Economic Co-operation and Development (OECD)/Group of Twenty (G20) Inclusive Framework in its January 2020 Statement has affirmed the commitment to arrive at a consensus-based solution to the tax challenges arising out of digitalization of the economy by the end of 2020 and take forward the on-going discussion on the two-pillar approach. This article examines some of the key issues in the Statement for developing countries, such as the scope, new nexus rules, role of accounting standards and proposed source rules. India’s proposal on profit attribution through a two-factor apportionment using employees and assets is mentioned as a potential option for country-wise thresholds in the new nexus.


Tax Cooperation Policy Brief 3, August 2018

Interaction of Transfer Pricing & Profit Attribution: Conceptual and Policy Issues for Developing Countries

By Dr. Vinay Kumar Singh

Till 2010, model tax conventions treated profit attribution to permanent  establishments  and transfer  pricing under  different  articles,  and  profit  attribution under Article  7  allowed sales to be taken into account both in the direct accounting method as well as the indirect apportionment  method.  However,  the  revised  Article  7  in  the  2010 update of the OECD Convention approximated profit  attribution  with  transfer  pricing  and  omitted  the option  of  apportionment,  thereby  undermining  sales  and contributions   made   by   market   jurisdiction   to   business profits. When a tax treaty retains Article 7 based on the UN Convention  or  the  earlier  OECD  Convention,  Contracting States  can  take  sales  into  account  and  also  opt  for  apportionment.  Developing  countries  need  to  fully  understand these implications of  Article  7 in their tax treaties, and opt for informed choices for transfer pricing and profit attribution  to  permanent  establishments,  including  apportionment that takes sales into account.



Your Cart