Permanent Establishment

Introduction

Overseas permanent establishments were a global tax agreement to stop offshoring of profits by businesses. It looks at whether a business has a significant base in a overseas country and then determines whether they would be open to additional local taxes.

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How does this apply to Quantico Clients?

With changes in technology even small and growing businesses are quickly able to have an international impact. Clients who are generating revenue overseas can be susceptible to falling foul of this.

What do you need to look out for?

Overseas sales

Overseas employees and infrastructure

Management decisions being made overseas.

Broad Definition for determining a permanent establishment

Under the Model Treaty, article 5, there are two broad circumstances within which either a foreign enterprise could have a UK permanent establishment or a UK enterprise could have a foreign permanent establishment. If either of these conditions are met there is potential for a PE and therefore additional corporation tax liabilities for the business.

Where there is a fixed place of business through which the business of an enterprise is wholly or partly carried on - Model Treaty Article 5(1). This is known as the fixed place of business permanent establishment (

INTM266050⁠

INTM266130⁠

Or,

Where an agent, other than an agent of independent status, acting on behalf of an enterprise has, and habitually exercises, in a contracting state an authority to conclude contracts in the name of the enterprise - Model Treaty Article 5(5). This is known as the deemed dependent agent permanent establishment (

INTM266140⁠

INTM266150⁠

Resources

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HMRC⁠

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