INTM264440 - Non-residents trading in the UK: permanent establishment: domestic and treaty law: fixed place of business: ‘personnel’ condition

Fixed place of business permanent establishment - personnel condition

For a fixed place of business to constitute a PE the business of the enterprise must have been carried on through that place, i.e. persons working in the business must have worked from that place. A PE alone does not give rise to taxing rights.

Those persons could be employees, the entrepreneur or proprietor themselves or any other persons receiving instructions from the enterprise e.g. self-employed consultants (these may well be ‘dependent agents’, however, as long as it can be shown that the work is carried out from a fixed place of business it is irrelevant whether the dependent agent is authorised to conclude contracts, see INTM264500).

Secondment of employees

The secondment of employees still formally employed by a non-resident enterprise to an associated enterprise to carry out the latter’s business will not normally result in the seconding enterprise having a fixed place of business at the place where its employees now work. That is because they are carrying on the business of the other enterprise, rather than the one that still formally employs them. That situation must be distinguished from one where the employees provide a service to the other enterprise and may create a fixed place of business of their employer at the place where they work and provide that service. In that case it would be common for the costs of the employees to be marked up because they are carrying on the business of their formal employer. The detailed analysis in the OECD Commentary on Article 15 (Employees) indicates the factors that may need to be taken into account.

Subcontractors

In some circumstances subcontractors may also carry on the business of the enterprise, but the latter will only have a permanent establishment if the other conditions for a fixed place of business are met, i.e. the place is at the disposal of that enterprise. If the enterprise itself has no employees at that place the enterprise must clearly have the effective power to use that place, e.g. because the enterprise owns or has legal possession of it, and controls access to and use of the place. A building site is an example: if the construction firm, or the property developer that owns the site, controls access to and use of the site and has overall responsibility for what happens at that location during the time spent on the site by the subcontractor, it has a fixed place of business there, even if it has no personnel there itself. Another example would be where an enterprise that owns a hotel rents out the hotel’s rooms through the internet, but subcontracts the on-site operation of the hotel to another enterprise. However, it is important to bear in mind that most sub-contract arrangements do not create a permanent establishment of the contractor because the premises of the sub-contractor at not at its disposal.

Automated equipment

Where the business of an enterprise is carried out through automated machinery a PE may nevertheless exist if personnel are required to set up, operate, control or maintain such equipment. Whether or not gaming or vending machines and the like set up by a foreign enterprise in another state constitute a PE thus depends on whether or not the enterprise carries on a business activity besides the initial setting up of the machines.

A PE does not exist if an enterprise merely sets up a machine and then leases it to another enterprise but it could if the first enterprise also operated and maintained the machine for its own account. This also applies if the machine is operated and maintained by an agent dependent on the enterprise.