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HMRC internal manual

Oil Taxation Manual

Non-Residents Working on the UK Continental Shelf: Double Taxation Agreements - Long term offshore construction type work - Is there a fixed place of business?

The first question which arises is whether the construction vessel itself constitutes a permanent establishment of the non-resident company by virtue of the Permanent Establishment Article of the relevant Double Taxation Treaty; that is whether the vessel is a “fixed place of business” through which the business of the company is wholly or partly carried on.

The OECD Commentary on Article 5(1) of the Model Convention explains what is meant by a “fixed place of business”. It must be:

  • established at a distinct place
  • with a certain degree of permanence

It then goes on to say that “if the place of business was not set up merely for a temporary purpose it can constitute a permanent establishment even though it existed in practice only for a short period of time because of the special nature of the activity …..”.

Since the place of business must be fixed it also follows that a permanent establishment can be deemed to exist only if the place of business has a certain degree of permanence i.e. if it is not of a purely temporary nature.

In HMRC’s view a vessel may be regarded as a permanent establishment even though it may alter its location from time to time. The OECD Commentary on Article 5(1) says that equipment may constitute a fixed place of business even though it is not fixed to the soil on which it stands but remains on a particular site. A single place of business will generally be considered to exist where the nature of the business is such that a particular location within which the activities are moved may be identified as comprising a coherent whole commercially and geographically with respect to that business. This would apply to a construction vessel operating at a location or a series of locations at a single North Sea construction site.