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HMRC internal manual

International Manual

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HM Revenue & Customs
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Non-residents trading in the UK: Treaty permanent establishment

Fixed place of business permanent establishment - time condition - degree of permanence of activities

The words used in article 5(1) make it clear that there is a time or degree of permanence condition inherent within the term ‘fixed place of business’ but it is not necessary that equipment or plant be physically fixed to the ground before it could constitute ‘a fixed place of business’. There is no certain rule on the period that must pass before a place of business becomes ‘fixed’ and this can often depend on the nature of the activities. But it is immaterial how long an enterprise operates in another Country if it does not do so at a distinct place.

Since the place of business must be fixed, it also follows that a PE can be deemed to exist only if the place of business has a certain degree of permanency, i.e. if it is not of a purely temporary nature. A place of business may, however, constitute a PE even though it exists, in practice, only for a very short period of time. It is sometimes difficult to determine whether this is the case. Whilst the practices of the different Member States of the OECD are not necessarily consistent in so far as time requirements are concerned, experience has shown that PEs have normally not been considered to exist insituations where a business has been carried on in a country through a place of business that was maintained for less than six months. Conversely practice shows that there were many cases where a PE has been considered to exist where the place of business was maintained for a period longer than six months. One exception to the six month yardstick has been where the activities were of a recurrent nature; in such cases, each period of time during which the place is used needs to be considered in combination with the number of times during which that place is used (which may extend over a period of years). Another exception has been made where activities constituted a business that was carried on exclusively in that country; in this situation, the business may have short duration because of its nature but since it is wholly carried out in that country, its connection with that country is stronger. Temporary interruptions of business activities do not cause a PE to cease to exist.

Where a place of business which was, at the outset, designed to be used for such a shortperiod of time that it would not have constituted a PE but it is in fact maintained for such a period that it can no longer be considered as a temporary one, it becomes a fixed place of business and [as brought out at paragraph 6.3 of the commentary to model treaty article 5(1)] can thus retrospectively be a PE. A place of business can also constitute a PE from its inception even though it existed, in practice, for a very short period oftime, if as a consequence of special circumstances, e.g. death of the taxpayer, investment failure etc, it was prematurely terminated.

A PE begins to exist as soon as the enterprise commences to carry on business through a fixed place of business. A period of preparation, as distinct from the real business activities, should not be treated as the business being carried out. The PE ceases to exist with the disposal of the fixed place of business or with the cessation of any activity through it.

A single place of business will generally be considered to exist where, in light of the nature of the business, a particular location within which the activities are moved may be identified as constituting a coherent whole commercially and geographically with respect to the business. For example, the market stall mentioned already if it moved position within a market area. Similarly, a painter who undertook under a single contract to paint a multi-occupied estate would have a single place of business and the duration of his activities at that place would be gauged accordingly. But if the painter entered into individual contracts with unrelated occupants of premises on an estate his activities should be considered separately rather than as a coherent whole.