The Unstable Dependent Agency Permanent Establishment Concept
Posted: 11 Oct 2002
The OECD model provides that the business profits of a nonresident enterprise are taxable by the source country only if the enterprise carries on business in the source country through a permanent establishment situated therein. The concept of the PE includes, inter alia, a dependent agent who has and habitually exercises an authority to conclude contracts in the name of the nonresident enterprise.
This article demonstrates the instability of the concept of the agency PE. First, it shows that the concept of a dependent agent PE differs widely among countries, which arguably reflects the innate instability of the concept.
Second, this article argues that the concept of a dependent agent is inconsistent with the arm's-length principle. More fundamentally, this article argues, the contradiction is a subset of the historical incongruence of the arm's-length concept itself.
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