Tax & Accounting Blog

Treaty Exemptions for Business Profits – Part 5: A Fixed Place of Business

1099, ONESOURCE, Tax Information Reporting, W-8 & W-9 Foreign Reporting, Withholding Management April 4, 2012

In order for an enterprise to have a fixed place of business, the place of business must be a building or physical location. The premises need not be owned or leased by the enterprise nor used exclusively by the enterprise. It is enough that the space is at the constant disposal of the enterprise. For example, office space situated in the facilities of another business can cause an enterprise to have a permanent establishment.

Because the term permanent implies continuity, temporary use of facilities or premises for business will not create a permanent establishment. Also, the use of a fixed place of business of another business that is used only temporarily by employees of the enterprise will not create a permanent establishment (see Rev. Rul. 77-45). For example, an employee providing contracted-for services at a client’s location will not cause the employer to have a permanent establishment under the fixed place of business rule.

The permanent establishment article of treaties generally makes it clear that having a controlled company or business in the United States will not in and of itself cause an enterprise to have a permanent establishment. Such a controlled business may nevertheless be a permanent establishment if it is in fact an agent soliciting and contracting for sales of goods or services on behalf of the enterprise.