Current Article 7(4) provides that insofar as it has been
‘customary’ to determine the profits attributed to a
permanent establishment on the basis of apportionment of total
profits of the enterprise, that method may continue (
GIM10170). In practice, this method is
only acceptable if it is in accordance with other principles in the
Article and it is “generally not appropriate as a method
which has regard only to the activities of the permanent
establishment”. With the development of clear principles,
Article 7(4) is expected to become redundant.
Article 7(7) provides that other Articles - notably in this
context Article 10 (dividends) and Article 11 (interest) – in
principle take precedence. Even so, the authorised OECD approach
discussed above is relevant. This is because there is expected to
be co-ordination between the manner in which the investment income
that is attributable to a permanent establishment is determined
under Article 7 and the manner in which the investment assets that
are considered (in the wording of the interest and dividend
articles) ‘effectively connected with’ or ‘part
of the business property of’ the permanent establishment is
determined under Article 10(4) or Article 11(4). See also
GIM10190.
