Permanent Establishment

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An extract from the Malta – United Kingdom Double Taxation Treaty

Article 5

Permanent Establishment

(1) For the purposes of this convention the term “permanent establishment” means a fixed place of business through which the business of an enterprise is wholly or partly carried on.

(2) The term “permanent establishment” includes especially:

  • (a) a place of management;
  • (b) a branch;
  • (c) an office;
  • (d) a factory;
  • (e) a workshop;
  • (f) an installation or structure for the exploration of natural resources;
  • (g) a mine, an oil or gas well, a quarry or any other place of extraction of natural resources;
  • (h) a building site or construction or assembly project or supervisory activities in connection therewith, where such site, project or activity continues for more than six months.

(3) Notwithstanding the preceding provisions of this Article, the term ‘Permanent Establishment’ shall be deemed not to include:

  • (a) the use of facilities purely for the purposes of storage, display of delivery of goods or merchandise belonging to the enterprise;
  • (b) the maintenance of a stock of goods or merchandise belonging to the enterprise solely for the purpose of storage display or delivery;
  • (c) the maintenance of a stock of goods or merchandise belonging to the enterprise solely for the purpose of processing by another enterprise;
  • (d) the maintenance of a fixed place of business solely for the purpose of purchasing goods or merchandise or of collecting information for the enterprise;
  • (e) the maintenance of a fixed place of business solely for the purpose of carrying on, for the enterprise, any other activity of a preparatory nature or auxiliary character;
  • (f) the maintenance of a fixed place of business solely for any combination of activities mentioned in sub-paragraphs (a) to (e) of this paragraph, provided that the overall activity of the fixed place of business resulting from this combination is of a preparatory or auxiliary character.

(4) Notwithstanding the provisions of paragraphs (1) and (2) of this Article where a person – other than an agent of an independent status to whom paragraph (5) of this Article applies – is acting on behalf of an enterprise and has, and habitually exercises, in a Contracting State an authority to conclude contracts on behalf of the enterprise, that enterprise shall be deemed to have a permanent establishment in that State in respect to any activities which that person undertakes for the enterprise, unless the activities of such a person are limited to those mentioned in paragraph (3) of this article which, if exercised through a fixed place of business, would not make this fixed place of business a permanent establishment under the provisions of this paragraph.

(5) An enterprise of a Contracting State shall not be deemed to have a permanent establishment in the other Contracting State merely because it carries on business in that other State through a broker, general commission agent or any other agent of an independent status, where such a persons are acting in the ordinary course of their business. However if the activities of such an agent are carried out wholly or almost wholly for the enterprise (or for the enterprise and other enterprises which are controlled by it or have a controlling interest in it or are subject to the same common control) and the conditions made or imposed between them in their commercial or financial relations differ from those which would have been made or imposed if this had not been the case, that agent shall not be considered to be an agent of an independent status for the purpose of this paragraph.

(6) The fact that a company which is resident in a Contracting State controls or is controlled by a company which is a resident of the other Contracting State, or which carries on business in the other State (whether through a permanent establishment or otherwise) shall not of itself constitute a permanent establishment in the other.