Business Income (Article 7 OECD MC)

18 Pages Posted: 27 Sep 2007

See all articles by Reuven S. Avi-Yonah

Reuven S. Avi-Yonah

University of Michigan Law School

Kimberly A. Clausing

UCLA School of Law

Date Written: Sept. 30, 2007


The 2006 OECD Report on attribution of profits to permanent establishments states that its recommendation "was not constrained by either the original intent or by the historical practice and interpretation of Article 7." Moreover, the Report recommends a redrafting of both the Article itself and the Commentary. Given this, it seems appropriate to begin by asking: If we were working on a clean slate, what would be the best way to tax MNEs at source in the light of 21st century business practices?

The beginning point has to be that a modern MNE does not operate as if its constituent units, either subsidiaries or branches, deal with each other as if they were separate enterprises. Instead, a modern MNE is generally a single, unified enterprise, managed from a central location by managers who are responsible to their shareholders for the results of the MNE as a whole.

Keywords: permanent establishment, tax treaties

JEL Classification: H25, H26

Suggested Citation

Avi-Yonah, Reuven S. and Clausing, Kimberly A., Business Income (Article 7 OECD MC) (Sept. 30, 2007). U of Michigan Law & Economics, Olin Working Paper No. 07-016, U of Michigan Public Law Working Paper No. 91, Available at SSRN: or

Reuven S. Avi-Yonah (Contact Author)

University of Michigan Law School ( email )

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