INTM264510 - Non-residents trading in the UK: permanent establishment: domestic and treaty law: dependent agent permanent establishment (‘DAPE’): agent acting on behalf of a non-resident enterprise

Agent acting on behalf of a foreign enterprise

If there is no fixed place of business it is still possible for there to be a Permanent Establishment if an agent acts on behalf of the non-UK resident enterprise. Persons whose activities may create a PE for the non-resident enterprise are so called dependent agents, or “deemed PEs”. Such persons may be either individuals or companies and are not necessarily employees of the non-resident enterprise.

The commentary to Article 5 makes it clear that there is no need to consider, in respect of the same activities, whether a dependent agent PE (“DAPE”) exists if it is already clear that there is a fixed place of business PE.

Additionally, if the dependent agent engages in activities that are limited to those mentioned in Article 5(4) this does not create a permanent establishment.

Both domestic law (at S1141(1)(b) and S1142 of CTA 2010) and the OECD Model tax treaty (at Article 5(5)) identify the conditions that must be present in order for a DAPE to exist:

  • The agent is a dependent agent and not of independent status (see Article 5(6)/S1142 of CTA2010 ).

  • The agent has and habitually exercises an authority to

  • (treaty) conclude contracts in the name of the non-resident enterprise (see below);
  • (UK law) do business on behalf of the company

The OECD Commentary on the Model Treaty provides further guidance on what is meant by ‘authority to conclude contracts’.

Agent ‘habitually exercises an authority to conclude contracts in the name of the enterprise…’

The agent must have authority to conclude contracts in order for a permanent establishment to exist. In such a case there must be sufficient authority to bind the enterprise’s participation in the business activity in the State concerned.

The Commentary identifies the following key features:

  • Agents can enter both into contracts in the name of an enterprise and conclude contracts which are binding on the enterprise even if those contracts are not actually in the name of the enterprise, e.g. the contract is in the name of the agent.
  • Lack of active involvement by an enterprise in transactions may be indicative of a grant of authority to an agent. For example, an agent may be considered to possess actual authority to conclude contracts where he solicits and receives (but does not formally finalise) orders which are sent directly to a warehouse from which goods are delivered and where the foreign enterprise routinely approves the transactions.
  • Authority to conclude contracts must cover contracts relating to operations that constitute the business proper of the enterprise. It would be irrelevant, for instance, if the agent only has authority to contract to engage employees for the enterprise or other similar contracts relating to internal operations only.
  • A person who is authorised to negotiate all elements and details of a contract in a way binding on the enterprise can be said to exercise that authority ‘in that state’ even if the contract is signed by another person elsewhere or if the person has not been given formally a power of representation. The mere fact, however, that a person has attended or even participated in negotiations in a State between an enterprise and a client will not be sufficient, by itself, to conclude contracts in the name of the enterprise.
  • The agent must ‘habitually’ exercise an authority to conclude contracts. The extent and frequency of activity necessary to conclude that the agent is ‘habitually exercising’ contracting authority will depend on the nature of the contract and the business of the principal (the Commentary states that it is not possible to lay down a precise frequency test).