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HMRC internal manual

International Manual

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

Fixed place of business permanent establishment - activities specifically excluded from the definition of permanent establishment

Model treaty Article 5(4) lists certain activities that are not to be treated as permanent establishments even if they are carried on through a fixed place of business. In general, where the non-resident enterprise has a fixed place of business that is used only for storage, display or delivery of goods belonging to the enterprise, or for the purchase or collecting of information for the enterprise, such fixed place will not be a permanent establishment. A fixed place of business used solely for activities of a preparatory or auxiliary nature is also excluded.

In deciding whether or not a fixed place of business of a non-resident enterprise is used for activities of a preparatory or auxiliary nature, consider the following factors:

  1. Are the services it performs so remote from the actual realisation of profits by the enterprise that it would be difficult to allocate any part of the profit to the fixed place of business? If they are, then the fixed place of business will not be a permanent establishment. The benchmark to gauge the activities against is that of the trade as a whole entity. So, for example, if the UK activities are no different to the essence of the trade, e.g. the UK personnel collect market research information and the non-resident company’s main trade is concerned with market research, then the activities in the UK would not be preparatory or auxiliary and there could be a permanent establishment in the UK.
     
  2. Does the activity of the fixed place of business form an essential and significant part of the enterprise as a whole? A fixed place of business
    whose general purpose is identical to the general purpose of the enterprise is not used for activities of a preparatory or auxiliary nature. Examples of this are fixed places of business used for the purpose of managing an enterprise, or where a fixed place of business is maintained to supply spare parts of machinery supplied by the enterprise to customers and to service such machinery.

Note that the exclusion of activities of a preparatory or auxiliary nature from the definition of a permanent establishment only applies if these activities are solely for the non-resident enterprise. If the activities are performed not only for the enterprise but also for other enterprises, including other companies in the same group, then the fixed place of business will not be within the scope of the exclusion.