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HMRC internal manual

International Manual

HM Revenue & Customs
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Description of double taxation agreements: Permanent establishment

The basic definition of a permanent establishment is a fixed place of business through which the business of an enterprise is wholly or partly carried on. Specifically included in the definition are branches, offices and factories and some agreements also include building or construction sites which last for more than a specified period (six or twelve months). There are also some specific exclusion’s from the definition, generally where the activities carried on are of a preparatory or auxiliary nature.

Agents can be a permanent establishment of an enterprise if they have, and habitually exercise, authority to conclude contracts on behalf of an enterprise. However, independent agents who act for an enterprise in the ordinary course of their business do not constitute a permanent establishment of that enterprise.

If a foreign company controls a United Kingdom resident subsidiary company, that subsidiary will not for that reason alone be regarded as a permanent establishment of the foreign company. However the subsidiary may be a permanent establishment of its foreign parent company if on the facts it carries on the business of the parent company as a dependent agent in addition to its own business.

Determining the existence of a permanent establishment is a difficult technical issue and advice is available from Business International, Transfer Pricing Team..