NEW APPROACH IN THE ATTRIBUTION OF PROFITS TO PERMANENT ESTABLISHMENTS

THE AUTHORISED OECD APPROACH AND ITS IMPLICATIONS FOR CROATIAN TAX LAW

Abstract

The Organization for Economic Cooperation and Development (Organisation
for Economic Cooperation and Development, hereinafter: OECD), is the leading
organization in the field of taxation. It is the successor to the League of Nations’ work
in the field of taxation. This organization, in its long history of work has been trying
to solve the problem of attribution of profits of companies that do business across
borders, without founding an individual company to carry out such work.
This topic has been preoccupying the international tax community for many
years. Recently, an entirely different approach in attributing the profits to the so-called
permanent establishment has been adopted. Since this topic has never been discussed
in the national academic literature, the author considered it important to handle this
issue and see in which way the domestic law determines the profits of a permanent
establishment and what are the implications of the work of the OECD on national
legislation.
This article consists of several chapters. The first one discusses the concept of
a permanent establishment. The second part is devoted to a historical review of the
methods for determining the profits of a permanent establishment. In the third part
different theoretical models for determining the profits of a permanent establishment
are being discussed. The fourth part is devoted to the new approach called the
Authorised OECD Approach (AOA). The fifth part is devoted to domestic law and
the implications of the work of the OECD on it. Finally, the author presents certain
conclusions.