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The 2010 Report on the Attribution of Profits to Permanent Establishments (“the Report�) sets out the principles of the authorised Organisation for Economic Co-operation and Development (OECD) approach (the AOA) in Part I, which also provides guidance on the practical application of these principles in a general sense. Part II of the Report specifically considers the banking sector and how the AOA applies to a number of situations often found where traditional banking business is carried on through a permanent establishment.

The most common situation to be considered under TIOPA10/S371EB will be that of a loan made by a CFC to another group company. Much of the guidance on functional and factual analysis of a traditional banking business at B-1 to B-3 of Part II of the Report will be useful in considering such loans, particularly where groups� financing operations are complex. However the analysis always needs to be carried out in the context of the particular situation, which, for Chapter 5, will not be that of a bank lending to an unconnected customer.