A Note on the Zimmer Case and the Concept of Permanent Establishment

Abstract

This paper argues that under Article 5(5) of the OECD Model Convention on Income and on Capital, foreign sellers are free to avoid permanent establishments in all source countries, regardless of whether a particular source country's law includes the commissionaire concept, by selling through source country dependent agents that lack authority to enter into contracts that legally bind the foreign seller. This means that a foreign seller is substantially free to elect whether or not to have a permanent establishment in a source country.

Keywords: permanent establishment, international taxation, source taxation, tax treaties