Yesterday we looked at dependent agents and their ability on the treaty to create a permanent establishment for an enterprise. Today I’ll be looking at independent agents, which do not lead to the determination of a permanent establishment for tax purposes and hence do not create a tax presence.

The commentaries provide this general definition to begin the discussion:

37. A person will come within the scope of paragraph 6, i.e. he will not constitute a permanent establishment of the enterprise on whose behalf he acts only if

a) he is independent of the enterprise both legally and economically, and Read More

The permanent establishment section in the OECD Model Tax Treaty is a remarkably complete section; it anticipates the work-arounds that most attorney’s would consider to avoid PE status. Case in point: the agent rules.

Remember that a permanent establishment is “a fixed place of business through which the business of an enterprise is wholly or partly carried out. In seeing that definition, an attorney would start to think,” what if, instead of a bricks and mortar establishment, we contract with a person?” Well, the treaty has that covered as well.

5. Notwithstanding the provisions of paragraphs 1 and 2, where a person — other than an Read More

Continuing the look at the OECD Model Treaty’s definition of permanent establishment, we find the treaty specifically stating the following are PEs in Article 5, Section 2:

Today I’m going to continue looking at the OECD model tax treaty’s definition of permanent establishment. Let me start with, Article 5, Section 2, which states:

2. The term “permanent establishment” includes especially:

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