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HMRC internal manual

Double Taxation Relief Manual

DT: Yugoslavia: double taxation agreement, Article 7: Business profits


(1) The profits of an enterprise of a Contracting State shall be taxable only in that State unless the enterprise carries on business in the other Contracting State through apermanent establishment situated therein. If the enterprise carries on business as aforesaid, the profits of the enterprise may be taxed in the other State but only so much of them as is attributable to that permanent establishment.

(2) Subject to the provisions of paragraph (3) of this Article, where an enterprise of a Contracting State carries on business in the other Contracting State through a permanent establishment situated therein, there shall in each Contracting State be attributed to that permanent establishment the profits which it might be expected to make if it were a distinct and separate enterprise engaged in the same or similar activities under the same or similar conditions and dealing at arm’s length with the enterprise of which it is a permanent establishment.

(3) In the determination of the profits of a permanent establishment, there shall beallowed as deductions expenses of the enterprise which are incurred for the purposes ofthe permanent establishment, including executive and general administrative expenses so incurred, whether in the State in which the permanent establishment is situated or elsewhere.

(4) The profits to be attributed to a permanent establishment may be determined on the basis of separate accounts relating to the permanent establishment. Insofar as it has been customary in a Contracting State to determine the profits to be attributed to a permanent establishment on the basis of an apportionment of the total profits of the enterprise to its various parts, nothing in paragraph (2) of this Article shall preclude that Contracting State from determining the profits to be taxed by such an apportionment as maybe customary; the method of apportionment adopted shall, however be such that the result shall be in accordance with the principles embodied in this Article.

(5) The provisions of this Article shall apply to the profits derived by a resident of the United Kingdom in Yugoslavia in respect of his participation in a joint venture with a Yugoslav enterprise but shall not affect the imposition of United Kingdom tax in respect of such profits.

(6) No profits shall be attributed to a permanent establishment by reason of the mere purchase by that permanent establishment of goods or merchandise for the enterprise.

(7) Where profits include items which are dealt with separately in other Articles of this Convention, then the provisions of those Articles shall not be affected by the provisionsof this Article.