The Use of the OECD Commentary
Elgar Tax Law and Practice series
Chapter 3: DEFINITION OF PERMANENT ESTABLISHMENT (ART. 5)
The main use of the concept of a PE as defined by treaties is to determine the right of a CS (the SC) to tax the profits of an enterprise of the other CS. In fact, once there is a PE in the SC, under Art. 7 such SC has the power to tax the profits of an enterprise of the other CS arising from activities carried out through a PE situated therein. By contrast, the SC does not have the power to tax the profits of an enterprise of the other CS unless it carries on its business through a PE situated therein. Before 2000, the income from professional services and other activities of an independent character was regulated by Art. 14 which was eliminated from the Model in 2000. The underlying idea was there was no intended differences between the concept of PE used in Artt. 5 and 7, and the concept of fixed base, used in Art. 14 (independent personal services), with the result that the definition of PE became applicable to what previously constituted a fixed base. Just a few of examples of judicial applications of the PE-fixed base concept. AuCo, a company resident of Austria, produced pollens in Switzerland where it used a barn, a container and an office. For several years, AuCo had obtained the technical services of X, a Swiss agriculture engineer, resident of Switzerland. Each year the period X stayed in Austria did not exceed six months and
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