Artificial Intelligence and Unstaffed PEs: The Favourable German Interpretation of the 2010 OECD Report

According to German rules implementing the 2010 OECD Report on the Attribution of Profits to Permanent Establishments, which adopts the “separate-entity approach” for permanent establishments (PEs), an unstaffed PE is not taxed in the source state but where the staff in charge of the PE resides. All OECD member countries, however, follow article 7(2) of the OECD Model and also tax unstaffed PEs in the source state. The dissenting German view leads either to zero taxation (“white income”) or double taxation. This note discusses this problem, including through the use of examples and figures.