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HMRC internal manual

International Manual

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

Agent acting on behalf of a foreign enterprise

One of the ways in which a permanent establishment of a foreign enterprise may be brought into existence is where an agent, other than an agent of independent status, acting on behalf of the enterprise has, and habitually exercises, in a contracting state an authority to conclude contracts in the name of the enterprise - Model Treaty Article 5(5). This is known as the ‘deemed dependent agent permanent establishment’ or ‘agency permanent establishment’. This guidance covers the scope for there to be a UK PE of a non-UK enterprise or conversely the scope for there to be a PE of a UK enterprise in a foreign jurisdiction.

The commentary to article 5 (at paragraph 35 in the July 2010 version) makes it clear that there is no need to consider, in respect of the same activities, whether a deemed dependent agent PE exists if it is already clear that there is a fixed place of business PE.

Persons whose activities may create a PE for the enterprise are so-called dependent agents, i.e. persons, whether or not employees of the enterprise, who are not independent agents under article 5(6) of the Model Treaty (INTM266150). Such persons may be either individuals or companies and need not be residents of, nor have a place of business in, the State in which they act for the enterprise. Such treatment is to be limited to persons who in view of the scope of their authority or the nature of their activity involve the enterprise to a particular extent in business activities in the State concerned. Therefore, article 5(5) continues on the basis that only persons having the authority to conclude contracts can lead to a PE for the enterprise. In such a case the person has sufficient authority to bind the enterprise’s participation in the business activity in the State concerned. The use of the term PE in this context presupposes, of course, that the person makes use of this authority repeatedly and not merely in isolated cases.

Also, the phrase “authority to conclude contracts in the name of the enterprise” does not confine the application of the provisions to an agent who enters into contracts literally in the name of the enterprise; the provisions apply equally to an agent who concludes contracts which are binding on the enterprise even if those contracts are not actually in the name of the enterprise. Lack of active involvement by an enterprise in transactions may be indicative of a grant of authority to an agent. For example, an agent may be considered to possess actual authority to conclude contracts where he solicits and receives (but does not formally finalise) orders which are sent directly to a warehouse from which goods are delivered and where the foreign enterprise routinely approves the transactions.

The authority to conclude contracts must cover contracts relating to operations that constitute the business proper of the enterprise; for example contracts for sale in the case of a merchanting business. It would be irrelevant, for instance, if the person only had authority to contract to say engage employees for the enterprise or some other resource outside of the main business transactions of the enterprise. A person who is authorised to negotiate all elements and details of a contract in a way binding on the enterprise can be said to exercise that authority ‘in that State’ even if the contract is signed by another person elsewhere. The level of an agent’s actual authority in the business should be tested by reference to the commercial realities of the situation.

Where an agency PE exists on the basis of an agent carrying out another enterprise’s business in another territory, the chargeable profits of that agency PE should include all of the agents activities for the enterprise, i.e. the chargeable profits are not limited to only those arising from the agent’s conclusion of contracts for the enterprise.