DEPARTMENT OF THE TREASURY TECHNICAL EXPLANATION OF THE CONVENTION BETWEEN
THE GOVERNMENT OF THE UNITED STATES OF AMERICA AND THE GOVERNMENT OF IRELAND(三)
颁布时间:1997-07-28
DEPARTMENT OF THE TREASURY TECHNICAL EXPLANATION OF THE CONVENTION BETWEEN
THE GOVERNMENT OF THE UNITED STATES OF AMERICA AND THE GOVERNMENT OF
IRELAND FOR THE AVOIDANCE OF DOUBLE TAXATION AND THE PREVENTION OF FISCAL
EVASION WITH RESPECT TO TAXES ON INCOME AND CAPITAL GAINS(三)
ARTICLE 5
Permanent Establishment
This Article defines the term "permanent establishment," a term that
is significant for several articles of the Convention. The existence of a
permanent establishment in a Contracting State is necessary under Article
7 (Business Profits) for the taxation by that State of the business
profits of a resident of the other Contracting State. Since the term
"fixed base" in Article 14 (Independent Personal Services) is understood
by reference to the definition of "permanent establishment," this Article
is also relevant for purposes of Article 14. Articles 10, 11 and 12
(dealing with dividends, interest, and royalties, respectively) provide
for reduced rates of tax at source on payments of these items of income to
a resident of the other State only when the income is not attributable to
a permanent establishment or fixed base that the recipient has in the
source State. The concept is also relevant in determining which
Contracting State may tax certain gains under Article 13 (Capital Gains)
and certain "other income" under Article 22 (Other Income).
The Article follows closely both the U.S. and OECD Models. It does not
differ significantly from the definition of a permanent establishment in
the prior Convention.
Paragraph 1
The basic definition of the term "permanent establishment" is
contained in paragraph 1. As used in the Convention, the term means a
fixed place of business through which the business of an enterprise is
wholly or partly carried on.
Paragraph 2
Paragraph 2 lists a number of types of fixed places of business that
constitute a permanent establishment. This list is illustrative and
non-exclusive. According to paragraph 2, the term permanent establishment
includes a place of management, a branch, an office, a factory, a
workshop, and a mine, oil or gas well, quarry or other place of extraction
of natural resources.As indicated in the OECD Commentaries (see paragraphs
4 through 8), a general principle to be observed in determining whether a
permanent establishment exists is that the place of business must be
"fixed" in the sense that a particular building or physical location is
used by the enterprise for the conduct of its business, and that it must
be foreseeable that the enterprise's use of this building or other
physical location will be more than temporary.
Paragraph 3
Paragraph 3 provides rules to determine whether a building site or a
construction or installation project constitutes a permanent establishment
for the contractor, or installer, etc. An activity is merely preparatory
and does not create a permanent establishment under paragraph 4(e) unless
the site, project, etc. lasts or continues for more than twelve months.
This provision differs from the U.S. Model in that it does not cover
offshore drilling rigs. Special rules regarding exploration and
exploitation of natural resources are found in Article 21 (Offshore
Exploration and Exploitation Activities).
The twelve-month test applies separately to each site or project. The
twelve-month period begins when work (including preparatory work carried
on by the enterprise) physically begins in a Contracting State. A series
of contracts or projects by a contractor that are interdependent both
commercially and geographically are to be treated as a single project for
purposes of applying the twelve-month threshold test. For example, the
construction of a housing development would be considered as a single
project even if each house were constructed for a different purchaser.
If the twelve-month threshold is exceeded, the site or project
constitutes a permanent establishment from the first day of activity. In
applying this paragraph, time spent by a subcontractor on a building site
is counted as time spent by the general contractor at the site for
purposes of determining whether the general contractor has a permanent
establishment.However, for the sub-contractor itself to be treated as
having a permanent establishment, the subcontractor's activities at the
site must last for more than 12 months. If a sub-contractor is on a site
intermittently time is measured from the first day the sub-contractor is
on the site until the last day (i.e., intervening days that the
sub-contractor is not on the site are counted) for purposes of applying
the 12-month rule.
These interpretations of the Article are based on the Commentary to
paragraph 3 of Article 5 of the OECD Model, which contains language almost
identical to that in the Convention. These interpretations are consistent
with the generally accepted international interpretation of the language
in paragraph 3 of Article 5 of the Convention.
Paragraph 4
Paragraph 4 contains exceptions to the general rule of paragraph 1,
listing a number of activities that may be carried on through a fixed
place of business, but which nevertheless do not create a permanent
establishment. The use of facilities solely to store, display or deliver
merchandise belonging to an enterprise does not constitute a permanent
establishment of that enterprise. The maintenance of a stock of goods
belonging to an enterprise solely for the purpose of storage, display or
delivery, or solely for the purpose of processing by another enterprise
does not give rise to a permanent establishment of the first-mentioned
enterprise. The maintenance of a fixed place of business solely for the
purpose of purchasing goods or merchandise, or for collecting information,
for the enterprise, or for other activities that have a preparatory or
auxiliary character for the enterprise, such as advertising, or the supply
of information do not constitute a permanent establishment of the
enterprise. Thus, as explained in paragraph 22 of the OECD Commentaries,
an employee of a news organization engaged merely in gathering information
would not constitute a permanent establishment of the news organization.
Finally, subparagraph 4(f) provides that a combination of the
activities described in the other subparagraphs of paragraph 4 will not
give rise to a permanent establishment if the combination results in an
overall activity that is of a preparatory or auxiliary character. This
combination rule differs from that in the U.S. Model. In the U.S. Model,
any combination of otherwise excepted activities is deemed not to give
rise to a permanent establishment, without the additional requirement that
the combination, as distinct from each constituent activity, be
preparatory or auxiliary. It is assumed that if preparatory or auxiliary
activities are combined, the combination generally will also be of a
character that is preparatory or auxiliary. If, however, this is not the
case, a permanent establishment may result from a combination of
activities.
Paragraph 5
Paragraphs 5 and 6 specify when activities carried on by an agent on
behalf of an enterprise create a permanent establishment of that
enterprise. Under paragraph 5, a dependent agent of an enterprise is
deemed to be a permanent establishment of the enterprise if the agent has
and habitually exercises an authority to conclude contracts that are
binding on the enterprise. If, however, the agent's activities are limited
to those activities specified in paragraph 4 which would not constitute a
permanent establishment if carried on by the enterprise through a fixed
place of business, the agent is not a permanent establishment of the
enterprise.
Like the OECD Model, the Convention uses the term "in the name of that
enterprise," rather than the term "binding on the enterprise," found in
the U.S. Model. As indicated in paragraph 32 to the OECD Commentaries on
Article 5, paragraph 5 of the Article is intended to encompass persons who
have "sufficient authority to bind the enterprise's participation in the
business activity in the State concerned." Therefore, the change to the
U.S. Model is merely a clarification and does not result in a substantive
difference between the two provisions.
The contracts referred to in paragraph 5 are those relating to the
essential business operations of the enterprise, rather than ancillary
activities. For example, if the agent has no authority to conclude
contracts in the name of the enterprise with its customers for, say, the
sale of the goods produced by the enterprise, but it can enter into
service contracts in the name of the enterprise for the enterprise's
business equipment used in the agent's office, this contracting authority
would not fall within the scope of the paragraph, even if exercised
regularly.
Paragraph 6
Under paragraph 6, an enterprise is not deemed to have a permanent
establishment in a Contracting State merely because it carries on business
in that State through an independent agent, including a broker or general
commission agent, if the agent is acting in the ordinary course of his
business as an independent agent. Thus, there are two conditions that must
be satisfied: the agent must be both legally and economically independent
of the enterprise, and the agent must be acting in the ordinary course of
its business in carrying out activities on behalf of the enterprise.
Whether the agent and the enterprise are independent is a factual
determination. Among the questions to be considered are the extent to
which the agent operates on the basis of instructions from the enterprise.
An agent that is subject to detailed instructions regarding the conduct of
its operations or comprehensive control by the enterprise is not legally
independent.
In determining whether the agent is economically independent, a
relevant factor is the extent to which the agent bears business risk.
Business risk refers primarily to risk of loss. An independent agent
typically bears risk of loss from its own activities. In the absence of
other factors that would establish dependence, an agent that shares
business risk with the enterprise, or has its own business risk, is
economically independent because its business activities are not
integrated with those of the principal. Conversely, an agent that bears
little or no risk from the activities it performs is not economically
independent and therefore is not described in paragraph 6.
Another relevant factor in determining whether an agent is
economically independent is whether the agent has an exclusive or nearly
exclusive relationship with the principal. Such a relationship may
indicate that the principal has economic control over the agent. A number
of principals acting in concert also may have economic control over an
agent. The limited scope of the agent's activities and the agent's
dependence on a single source of income may indicate that the agent lacks
economic independence. It should be borne in mind, however, that
exclusivity is not in itself a conclusive test: an agent may be
economically independent notwithstanding an exclusive relationship with
the principal if it has the capacity to diversify and acquire other
clients without substantial modifications to its current business and
without substantial harm to its business profits. Thus, exclusivity should
be viewed merely as a pointer to further investigation of the relationship
between the principal and the agent. Each case must be addressed on the
basis of its own facts and circumstances.
Paragraph 7
Paragraph 7 clarifies that a company that is a resident of a
Contracting State is not deemed to have a permanent establishment in the
other Contracting State merely because it controls, or is controlled by, a
company that is a resident of that other Contracting State, or that
carries on business in that other Contracting State. The determination
whether a permanent establishment exists is made solely on the basis of
the factors described in paragraphs 1 through 6 of the Article. Whether a
company is a permanent establishment of a related company, therefore, is
based solely on those factors and not on the ownership or control
relationship between the companies.
ARTICLE 6
Income from Immovable Property (Real Property)
Paragraph 1
The first paragraph of Article 6 states the general rule that income
of a resident of a Contracting State derived from immovable property (real
property) situated in the other Contracting State may be taxed in the
Contracting State in which the property is situated. The paragraph
specifies that income from real property includes income from agriculture
and forestry as in the U.S. and OECD Models. Given the availability of the
net election in paragraph 3 of the Protocol, taxpayers generally should be
able to obtain the same tax treatment in the situs country regardless of
whether the income is treated as business profits or real property income.
Paragraph 3 clarifies that the income referred to in paragraph 1 also
means income from any use of real property, including, but not limited to,
income from direct use by the owner (in which case income may be imputed
to the owner for tax purposes) and rental income from the letting of real
property.
This Article does not grant an exclusive taxing right to the situs
State; the situs State is merely given the primary right to tax. The
Article does not impose any limitation in terms of rate or form of tax on
the situs State, except that, as provided in paragraph 3 of the Protocol,
the situs State must allow the taxpayer an election to be taxed on a net
basis. Under that provision, a resident of one Contracting State that
derives real property income from the other may elect, for any taxable
year, to be subject to tax in that other State on a net basis, as though
the income were attributable to a permanent establishment in that other
State. The election may be terminated with the consent of the competent
authority of the situs State. In the United States, revocation will be
granted in accordance with the provisions of Treas. Reg. section 1.871-
10(d)(2).
Paragraph 2
The term "immovable property (real property)" is defined in paragraph
2 by reference to the internal law definition in the situs State. It is to
be understood from the parenthetical use of the term "real property" in
the title to the Article and in paragraphs 1 and 2 that the term is
synonymous with the term "immovable property" which is used in the OECD
Model and by many other countries. In the case of the United States, the
term has the meaning given to it by Reg. § 1.897-1(b).
Paragraph 3
Paragraph 3 makes clear that all forms of income derived from the
exploitation of real property are taxable in the Contracting State in
which the property is situated. In the case of a net lease of real
property, if a net election has not been made, the gross rental payment
(before deductible expenses incurred by the lessee) is treated as income
from the property. Income from the disposition of an interest in real
property, however, is not considered "derived" from real property and is
not dealt with in this article. The taxation of that income is addressed
in Article 13 (Capital Gains). Also, the interest paid on a mortgage on
real property and distributions by a U.S. Real Estate Investment Trust are
not dealt with in Article 6. Such payments would fall under Articles 10
(Dividends), 11 (Interest) or 13 (Capital Gains). Finally, dividends paid
by a United States Real Property Holding Corporation are not considered to
be income from the exploitation of real property: such payments would fall
under Article 10 (Dividends) or 13 (Capital Gains).
Paragraph 4
Paragraph 4 specifies that the basic rule of paragraph 1 (as
elaborated in paragraph 3) applies to income from real property of an
enterprise and to income from real property used for the performance of
independent personal services. This clarifies that the situs country may
tax the real property income (including rental income) of a resident of
the other Contracting State in the absence of attribution to a permanent
establishment or fixed base in the situs State. This provision represents
an exception to the general rule under Articles 7 (Business Profits) and
14 (Independent Personal Services) that income must be attributable to a
permanent establishment or fixed base, respectively, in order to be
taxable in the situs state.
ARTICLE 7
Business Profits
This Article provides rules for the taxation by a Contracting State of
the business profits of an enterprise of the other Contracting State.
Throughout Article 7, business profits are referred to simply as
"profits," consistent with the OECD Model and many other U.S. income tax
treaties. The term as used here means profits from a business.
Paragraph 1
Paragraph 1 states the general rule that business profits of an
enterprise of one Contracting State may not be taxed by the other
Contracting State unless the enterprise carries on business in that other
Contracting State through a permanent establishment (as defined in Article
5 (Permanent Establishment)) situated there. When that condition is met,
the State in which the permanent establishment is situated may tax the
enterprise, but only on a net basis and only on the income that is
attributable to the permanent establishment. This paragraph is identical
to paragraph 1 of Article 7 of the U.S. and OECD Models.
Paragraph 4 of the Protocol incorporates into the Convention the rule
of Code section 864(c)(6). Like the Code section on which it is based,
paragraph 4 provides that any income or gain attributable to a permanent
establishment or a fixed base during its existence is taxable in the
Contracting State where the permanent establishment or fixed base is
situated, even if the payment of that income or gain is deferred until
after the permanent establishment or fixed base ceases to exist. This rule
applies with respect to paragraphs 1 and 2 of Article 7 (Business
Profits), paragraph 6 of Article 10 (Dividends), paragraph 3 of Articles
11 (Interest), 12 (Royalties) and 13 (Gains), Article 14 (Independent
Personal Services) and paragraph 2 of Article 22 (Other Income).
The effect of this rule can be illustrated by the following example.
Assume a company that is a resident of the other Contracting State and
that maintains a permanent establishment in the United States winds up the
permanent establishment's business and sells the permanent establishment's
inventory and assets to a U.S. buyer at the end of year 1 in exchange for
an interest-bearing installment obligation payable in full at the end of
year 3. Despite the fact that Article 13's threshold requirement for U.S.
taxation is not met in year 3 because the company has no permanent
establishment in the United States, the United States may tax the deferred
income payment recognized by the company in year 3.
Paragraph 2
Paragraph 2 provides rules for the attribution of business profits to
a permanent establishment. The Contracting States will attribute to a
permanent establishment the profits that it would have earned had it been
an independent enterprise engaged in the same or similar activities under
the same or similar circumstances. This language incorporates the arm's
length standard for purposes of determining the profits attributable to a
permanent establishment. The computation of business profits attributable
to a permanent establishment under this paragraph is subject to the rules
of paragraph 3 for the allowance of expenses incurred for the purposes of
earning the profits.
The "attributable to" concept of paragraph 2 is analogous but not
entirely equivalent to the "effectively connected" concept in Code section
864(c). The profits attributable to a permanent establishment may be from
sources within or without a Contracting State. This provision differs from
the rule in the prior Convention, which does not include the "attributable
to" concept and therefore does not allow the United States to tax
non-U.S.-source income of a U.S. permanent establishment of an Irish
enterprise.
Paragraph 3
Paragraph 3 follows paragraph 3 of Article 7 of the U.S. Model. It is
in substance the same as paragraph 3 of Article 7 of the OECD Model,
although it is in some respects more detailed. This paragraph provides
that, in determining the business profits of a permanent establishment,
deductions shall be allowed for the expenses incurred for the purposes of
the permanent establishment, ensuring that business profits will be taxed
on a net basis. This rule is not limited to expenses incurred exclusively
for the purposes of the permanent establishment, but includes a reasonable
allocation of expenses incurred for the purposes of the enterprise as a
whole, or that part of the enterprise that includes the permanent
establishment. Deductions are to be allowed regardless of which accounting
unit of the enterprise books the expenses, so long as they are incurred
for the purposes of the permanent establishment. For example, a portion of
the interest expense recorded on the books of the home office in one State
may be deducted by a permanent establishment in the other if properly
allocable thereto.
The paragraph specifies that the expenses that may be considered to be
incurred for the purposes of the permanent establishment include expenses
for research and development, interest and other similar expenses, as well
as a reasonable amount of executive and general administrative expenses.
This rule permits (but does not require) each Contracting State to apply
the type of expense allocation rules provided by U.S. law (such as in
Treas. Reg. sections 1.861- 8 and 1.882-5).
Paragraph 3 does not permit a deduction for expenses charged to a
permanent establishment by another unit of the enterprise. Thus, a
permanent establishment may not deduct a royalty deemed paid to the head
office. Similarly, a permanent establishment may not increase its business
profits by the amount of any notional fees for ancillary services
performed for another unit of the enterprise, but also should not receive
a deduction for the expense of providing such services, since those
expenses would be incurred for purposes of a business unit other than the
permanent establishment.
Paragraph 4
Paragraph 4 corresponds to paragraph 4 of Article 7 of the OECD Model
and provides that a Contracting State in certain circumstances may
determine the profits attributable to a permanent establishment on the
basis of an apportionment of the total profits of the enterprise. A total
profits method may be employed by a Contracting State if it has been
customary in that State to use the method even though the figure may
differ to some extent from a separate enterprise method so long as the
result is in accordance with the principles of Article 7 (i.e., the
application of the arm's length standard). Although this paragraph is not
included in the U.S. Model, this is not a substantive difference, because
the result provided by paragraph 4 is consistent with the rest of Article 7.
The U.S. view is that paragraphs 2 and 3 of Article 7 authorize the
use of total profits methods independently of paragraph 4 of Article 7 of
the OECD Model because total profits methods are acceptable methods for
determining the arm's length profits of affiliated enterprises under
Article 9. Accordingly, it is understood that, under paragraph 2 of the
Convention, it is permissible to use methods other than separate
accounting to estimate the arm's length profits of a permanent
establishment where it is necessary to do so for practical reasons, such
as when the affairs of the permanent establishment are so closely bound up
with those of the head office that it would be impossible to disentangle
them on any strict basis of accounts. Any such approach, like any approach
used under paragraph 4, is acceptable only if it approximates the result
that would be achieved under an approach based on separate accounting.
This view is confirmed by the OECD Commentaries on paragraphs 2 and 3 of
Article 7.
Paragraph 5
Paragraph 5 provides that no business profits can be attributed to a
permanent establishment merely because it purchases goods or merchandise
for the enterprise of which it is a part. This paragraph is identical to
paragraph 5 of Article 7 of the OECD Model. This rule applies only to an
office that performs functions for the enterprise in addition to purchasing.
The income attribution issue does not arise if the sole
activity of the permanent establishment is the purchase of goods or
merchandise because such activity does not give rise to a permanent
establishment under Article 5 (Permanent Establishment). A
common situation in which paragraph 5 is relevant is one in which a
permanent establishment purchases raw materials for the enterprise's
manufacturing operation conducted outside the United States and sells the
manufactured product. While business profits may be attributable to the
permanent establishment with respect to its sales activities, no profits
are attributable to it with respect to its purchasing activities.
Paragraph 6
Paragraph 6 provides that the business profits attributed to a
permanent establishment include only those derived from that permanent
establishment's assets or activities. Paragraph 1 of the diplomatic notes
further explains that the assets of a permanent establishment include any
property or rights used by or held by or for such permanent establishment.
This rule is consistent with the "asset-use" and "business activities"
test of Code section 864(c)(2). The OECD Model does not expressly provide
such a limitation, although it generally is understood to be implicit in
paragraph 1 of Article 7 of the OECD Model. This provision makes it clear
that the limited force of attraction rule of Code section 864(c)(3) does
not apply under the Convention.
This paragraph also tracks paragraph 6 of Article 7 of the OECD Model,
providing that profits shall be determined by the same method of
accounting each year, unless there is good reason to change the method
used. This rule assures consistent tax treatment over time for permanent
establishments. It limits the ability of both the Contracting State and
the enterprise to change accounting methods to be applied to the permanent
establishment. It does not, however, restrict a Contracting State from
imposing additional requirements, such as the rules under Code section
481, to prevent amounts from being duplicated or omitted following a
change in accounting method.