INTM264520 - Non-residents trading in the UK: permanent establishment: domestic and treaty law: dependent agent permanent establishment (‘DAPE’): common law v civil law

In considering dependent agent permanent establishment it is worth bearing in mind the difference between the legal system we operate in the UK, common law, and civil law which is the system operated in most European countries.

Common law

In the UK, under common law, we interpret any actions carried out by an agent as having been performed for the principal and binding the principal in the same way as though they had carried out those actions themselves. For example, a contract arranged by an agent in the UK to deliver goods owned by a foreign principal to a customer would be treated for UK tax purposes as though the foreign principal themselves had contracted in the UK for the delivery. This is the case, regardless of whose name the contract with the customer is made or written in. This is commonly known as the doctrine of the undisclosed principal. This differs from the legal position under civil law (see below).

Civil law

The majority of European countries have civil law codes. The civil law concept of agency is different from that under common law in that civil law will not usually regard the actions of an agent as though they were the actions of the principal. Civil law separates the relationship between the principal and the agent on the one hand and that between the agent and the third party (including a customer) on the other. Thus civil law countries do not, as the UK does, necessarily see the presence of the non- resident principal in the actions of the resident agent.

Consequently, normally, in jurisdictions where there is civil law an agent cannot legally bind the principal in cases of indirect representation e.g. where the agent enters into a contract in its own name; it would follow that an agent cannot be deemed to constitute a permanent establishment of its principal.

European case law

In Société Zimmer Ltd v. Ministre de l’Économie (2010), the French Supreme Court rejected the decision of the lower courts and instead concluded that under the commissionaire arrangement the agent (commissionaire), which was a French resident company, could not bind the principal under French commercial law and therefore did not constitute a permanent establishment.

In Dell Products vs Skatt Ø (2011) the Norwegian Supreme Court followed the precedent set by Zimmer. It overturned the decision of the lower courts and took the view that the Dell Norwegian commissionaire company did not constitute a permanent establishment as it did not bind the principal when it contracted with customers in its own name.

However, in Roche Vitamins Europe Ltd (2012) the Spanish Supreme Court took the opposing view and applied a substance over form approach in upholding the decisions reached by the lower courts that the Spanish subsidiary did in fact act as a dependent agent and therefore constituted a permanent establishment of the Swiss principal.