Consultation with Business on Part IV (Insurance) of the Discussion Draft on the Attribution of Profits to Permanent Establishments

The OECD’s Centre for Tax Policy and Administration (CTPA) is organising a consultation with business on Part IV (Insurance) of the Discussion Draft on the Attribution of Profits to Permanent Establishments.  That meeting will take place on Friday, 31 March 2006, in Paris at the OECD offices.

The Discussion Draft is part of a wider project to develop new guidance on attributing profits to permanent establishments under Article 7 of the OECD Model Tax Convention. This project was initiated by OECD Member governments because of the lack of a consensus interpretation and application of the current Commentary.  The project is in four Parts.  The Discussion Drafts of Parts I III, respectively, provide guidance as to the preferred interpretation of paragraphs 1-5 of Article 7 of the Model Tax Convention in the context of business in general, the banking sector, and global trading of financial instruments, whereas

Part IV focuses specifically on the insurance sector.

The OECD Committee on Fiscal Affairs (CFA) published Part IV on 27 June 2005 in order to obtain input from the public.  Over a dozen responses were received from individual insurance companies, insurance associations, and advisory firms, reflecting a diversity of interests and views.  In order to continue the dialogue, the consultation will bring together representatives from the insurance sector and government officials who are members of Working Party No. 6 (*) of the CFA.  The business representatives who submitted written comments have been specifically invited to participate in the consultation, but the consultation will also be open, subject to the limitations mentioned below, to other interested parties.

Due to room size limitations, and also in order to keep the group reasonably small for a more efficient dialogue, it may not be possible to accommodate everyone who wishes to attend.  Therefore, anyone who has not received a specific invitation but who wishes to participate in the consultation should submit a written request to Mary Bennett, Head of the Tax Treaty, Transfer Pricing & Financial Transactions Division of the CTPA at mary.bennett@oecd.org, explaining the nature of their interest and the specific contribution they would like to make to the discussion.

Because of the variety of positions expressed and also considering the complexity of issues it will not be possible to discuss all the points raised in the comments received.  The Working Party evaluated the comments and decided that further clarification and discussion of the issues relating to the following four areas would be of most use:  (i) significant functions in the insurance business; (ii) dependent agent PEs in the insurance business; (iii) attributing investment income and assets and surplus to the PE; and (iv) internal reinsurance dealings.  As the consultation will be limited to one day, an optimal use of the available time will require participants to limit their discussions to these issues and to be prepared to move quickly beyond general points covered in the written comments to address specific implications for the PE profit attribution project.

Comments received on other important issues will be thoroughly analysed by the Working Party but will not be the subject of discussion during the consultation.  In particular, the Working Party has taken note of the numerous comments received on Section C of the Discussion Draft, relating to the application of the Transfer Pricing Guidelines to insurance companies operating through subsidiaries.  The delegates have concluded that it is important for the report to retain a discussion of reinsurance transactions between related companies, as that provides a useful foundation for the challenging analysis applicable to inter branch reinsurance.  That being said, they are sensitive to the concerns expressed about Section C’s focus on tax abuse transactions.  They have resolved to revise Section C to address those concerns.  In light of that decision, Section C is not scheduled to be discussed at the consultation, and participants should not plan to spend any time on that issue at that meeting.

The consultation will be held in English only (no interpretation provided).  Further information on the practical arrangements for the meeting will be made available to participants in the near future.
If you have any questions on the issues to be discussed at this meeting, please do not hesitate to contact Mary Bennett at mary.bennett@oecd.org.  For practical arrangements concerning the meeting, you should contact Audrey Glynn at audrey.glynn@oecd.org

(*) That working party is the sub-group of the CFA which is responsible for issues relating to the taxation of multinational enterprises.