Dependent Agents as Permanent Establishments

S. 87I. Unclear Interpretation

The decisive condition to be met by a person in order to be deemed an agency permanent establishment under article 5(5) of the OECD Model Convention is to have “an authority to conclude contracts in the name of the enterprise”. Although this phrase has remained unchanged since 1963, when the first version of the OECD Model came out, uncertainty still exists as to the interpretation of this term, which is to be attributed mainly to the discrepancies between civil law and common law systems in respect of the concept of agency. In the absence of a more precise definition of the term in the OECD Model, the two major requirements encompassed by it – namely the “authority to conclude contracts” and the conclusion of said contracts “in the name of” the enterprise – have been subject to major dispute among scholars, which is also mirrored in the diverging interpretation results reached by tax courts around the world.

II. Different Agency Concepts in Civil Law and Common Law

A. The civil law concept of agency

Civil law distinguishes between two ways, in which an agent can act on behalf of the principal: direct representation and indirect representation. The indirect re...