The approach now adopted by the OECD in its 2008 and 2010 reports, was labelled ‘The working hypothesis’ during the earlier phases of the study. It requires the following steps in order for the OECD to apply its version of the functionally separate enterprise approach:

(1)The permanent establishment must be hypothesised as a distinct and separate enterprise. This requires a functional and factual analysis of the permanent establishment in order to determine the functions of the hypothesised distinct and separate enterprise and the economically relevant characteristics relating to the performance of those functions.

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