dependent agent imply paying taxes

Double taxation treaties (DTT) are bilateral agreements between two Contracting States that distribute the taxation rights between them when an enterprise or an individual resident of one of the Contracting States generates income in the other Contracting State.

They also rule out when does a Permanent Establishment (PE) exists due to the intense presence of the non resident in the other jurisdiction; thus, implying that income derived by the non resident is taxed in that other State as if it was a tax resident.

The eventual existence of a PE when a non- resident develops activity in another jurisdiction usually generates conflict between taxpayers and the tax authorities. It is, therefore, of major importance to know which exact situations are ruled out as those giving rise to a PE scenario.

Double taxation treaties consider that when a non resident enterprise (Enterprise A) acts in the other Contracting State through a dependent agent (the Agent) that acts on behalf of the enterprise and has and habitually exercises an authority to conclude contracts in the name of the enterprise, Enterprise A is deemed to have a permanent establishment (PE) in such State (where the Agent resides) with respect to the activities that such person (the Agent) carries out on behalf of the enterprise.
✔ This implies that the profits generated by Enterprise A due to the Agent’s activities are taxed in the Agent’s country, for Corporation tax purposes, as if it was a company set up therein, hence not limiting the taxation in such State to the intermediary’s consideration.
✔ Action 7 of the BEPS Plan, to be implemented through the Multilateral instrument, enlarges the cases in which an intermediary person (the Agent) of an enterprise can give rise to a PE in the Agent’s State:

  • The Agent must habitually conclude contracts or, as a novelty, habitually play the principal role leading to the conclusion of contracts that are routinely concluded without material modifications by the enterprise; and these contracts,
  • Are a) in the name of the enterprise; or, also, b) for the transfer of the ownership of, or for the granting of the right to use property owned by the enterprise or that the enterprise has the right to use; or, c) for the provision of services by that enterprise.
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✔ Besides, the exclusion for which it is considered that no PE exists when the agent is independent is limited in such a way that an agent shall not be independent if it intervenes exclusively or almost exclusively for the account of one or more enterprises to which it is closely related. Such would be the case in which an enterprise owns, directly or indirectly, more than 50% of the other enterprise or when both enterprises are under the control (more than 50%) of another enterprise.
✔ It is strongly recommendable paying attention on the evolution of tax rules affecting PEs, so that your enterprise can accurately comply with the tax obligations of the countries where it carries on part of its activities.

Publicado el 07-2021 por PBS