Germany Adopts New Regulations Governing Allocation of Income to Permanent Establishments

Abstract:

As a result of the ordinance on the application of the arm’s length principle to permanent establishments pursuant to section 1(5) of the German Foreign Tax Act (Betriebsstättengewinnaufteilungsverordnung, Ordinance on Income Allocation for Permanent Establishments) of 13 October 2014, income allocation for domestic and foreign permanent establishments stands on a new legal foundation. In particular, the new ordinance means that the ‘Authorized OECD Approach (AOA)’ with unlimited application of the separate enterprise fiction of permanent establishments for the purposes of income allocation is introduced into national law. The authors present the key principles of the ordinance and put forward a first critical appraisal.