Permanent establishment may be financed with debt capital
The permanent establishment may be financed with debt capital
raised by the permanent establishment itself by borrowing from
a third party (not the head offce). Alternatively, the head offce
may raise debt capital and provide such capital to the permanent
establishment.
Because a permanent establishment is merely a part of the
overall enterprise, only a portion of the overall profts of the
enterprise is
allocable to the permanent establishment. The required alloca-
tion of business profts between head offce and permanent
establishment is made using the Functionally Separate Entity
Approach. This so called Authorized OECD Approach was trans-
posed into domestic law with effect as of 2013 (Sec. 1 (5) AStG),
and the Federal Ministry of Finance (BMF) published its decree
on the Attribution on Profts to Permanent Establishments with
effect as of 2015.
The treatment of the permanent establishment as a separate
and independent enterprise (“Functionally Separate Entity
Approach”) requires a two-step procedure for the determination
of profts and the attribution of profits to permanent establish-
ments.
EU Forecast
euf:ba.18g:12/nws-01