Today, I’m going to move forward and look at the OECD Model Treaty’s rules on permanent establishment. This is important for a simple reason: in order to exert its taxing rights over a transaction or individual, a jurisdiction must either prove the person/business is a resident (which we covered over the last few weeks) or prove the transaction took place within the jurisdiction’s borders. A permanent establishment is where a transaction occurs; hence the determination of a permanent establishment is of vital importance.

Let’s start with the basic definition: “For the purposes of this Convention, the term “permanent establishment” means a fixed place of business through which the business of an enterprise is wholly or partly carried on.” The commentary adds important, further clarification. Read More

Last week, I looked at the residence provisions of the OECD Model Tax Treaty for individuals. This week, I’ll take a look at the provisions for non-individuals.

Before moving forward, however, it is important to briefly diverge into an area of academic discussion: partnerships, and how the OECD treaty deals with these business entities. Under Article 1, the treaty applies to “persons who are residents of one or both of the contracting states.” This leads to the question of, “how does the treaty deal with a pass-through entity?” Is the entity actually a separate company or is the entity a collection of its partners? If the latter, how do we deal with that? While this might seem like an academic debate, in reality it’s not, as some jurisdictions treat these business entities in a very different manner. The debate went so far as to have the OECD issue a paper on this Read More