Attribution of Profits to a Permanent Establishment of a Partnership (Hybrid Entity)

Abstract

The profit attribution to a permanent establishment (PE) in the case of a partnership often raises qualification conflicts. Questions such as whether the partnership is transparent or not or how to deal with expenses on the partners’ level in the PE income attribution have to be answered. Under German domestic law (§ 15 para 1 lit 2 dEStG), the concept of an additional balance sheet (“Ergänzungsbilanz”) is used for such an income attribution – an approach that is considered to be a treaty override. In the UK court case Bloomberg Inc. and BLP Acquisition Holdings LLC v. HMRC, the treatment of expenses related to the business of the partnership on the partners’ level was in dispute.

Keywords: Transfer Pricing, Separate Entity Approach, Permanent Establishment, Bloomberg Inc. and BLP Acquisition Holdings LLC v. HMRC, Limitations of Legal Fictions, Hybrid Partnership, Profit Attribution

JEL Classification: K33, K34