Dependent Agents as Permanent Establishments

S. 160I. Scope and Structure of this Chapter

Under article 5(6) of the OECD Model Tax Convention (OECD Model), an independent status is required in order for an agent to avoid being deemed a permanent establishment. In addition, the OECD Commentaries on Article 5 provide three specific factors to determine whether an agent enjoys an independent status. These factors concern (1) whether a foreign enterprise exercises comprehensive control over its agent’s activities, (2) whether an agent is allocated an entrepreneurial risk based on the agent’s ordinary activities and (3) the number of principals for whom the agent works. In this context, a question that arises concerns whether these factors have equal importance or whether some have more weight than others.

This chapter will analyse the independent character of an agent. However, as this is only one of the requirements under the agency permanent establishment provisions (articles 5(5) and 5(6)), it is also crucial to analyse how the independent character of an agent fits together with the other requirements. Therefore, the chapter will begin by discussing three different theories which explain how article 5(5) and article 5(6) fit together...