1. Information provided here is of general nature and is not intended to address the circumstances of any
particular individual or entity. Although we endeavor to provide accurate and timely information, there
can be no guarantee that such information is accurate as of the date of it is received or that it will continue
to be accurate in future. No one should action such information without appropriate professional advice
and after a thorough examination of the particular situation.
© 2015 Five Elements Advisory, all rights reserved
INTL TAX FLASH
Practice Subject Coverage Month
International Tax Permanent
Establishment
Global December 2015
Key areas of ambiguity
 Where a person, acting on behalf of a foreign enterprise, plays a substantial role in negotiating
a contract in the contracting state but then these contracts are finalized and authorised in the
country of the foreign enterprise.
 Where a foreign enterprise is carrying on business in a contracting state through a broker,
general commission agent or any other agent of an independent status (who are performing such
roles in ordinary course of their business) but such agent or broker is closely related to the
foreign enterprise.
 Clarification relating to “preparatory and auxiliary activities” performed by a person in the
contracting state for the foreign enterprise
 Fragmentation of activities of a cohesive business operation between related parties and
classifying them as preparatory or auxiliary in order to avoid PE
 Splitting of contracts with an intention to circumvent the formation of PE (in respect of a
building site or construction or installation project so that it does not seem to be lasting for more
than 12 months)
SL
No
OECD
Model
Treaty
Reference
Current norm Proposed norm
1 Article 5(3) Building site or construction or installation
project constitutes a PE only if it lasts for
more than 12 months.
In order to deal with abuse by splitting
up contracts amongst related parties
to reduce the period below 12
months, Principle Purpose Test
(“PPT”) shall be added to the
convention as a result of adoption of
Action Plan 6 on BEPS
2 Article 5(4) There are six specific activities enlisted in
this article, which even if performed
through a fixed place of business in a
contracting state by a foreign enterprise,
The exception would be restricted to
activities that are of “preparatory or
auxiliary character”.

2. Information provided here is of general nature and is not intended to address the circumstances of any
particular individual or entity. Although we endeavor to provide accurate and timely information, there
can be no guarantee that such information is accurate as of the date of it is received or that it will continue
to be accurate in future. No one should action such information without appropriate professional advice
and after a thorough examination of the particular situation.
© 2015 Five Elements Advisory, all rights reserved
would be exempted from being classified
as a “PE”.
An activity of a preparatory character
is one that is carried on in
contemplation of an activity that
constitutes the essential and
significant activity of the foreign
enterprise as a whole. This
preparatory activity should ideally be
carried for a relatively short period as
it is meant to precede another
activity.
An activity of an auxiliary character is
one that corresponds to an activity
that is carried on to support, without
being part of, the essential and
significant part of the activity
enterprise as a whole
3 Article 5(5) An agent (other than an agent of
independent status) acting on behalf of a
foreign enterprise and having the
“authority to conclude contract” in the
name of foreign enterprise forms a PE of
the foreign enterprise.
When a dependent agent habitually
concludes a contract or habitually
plays the principle role leading to the
conclusion of contracts without
material modification by the foreign
enterprise, then such dependent
agent will be regarding as the PE of
foreign enterprise.
4 Article 5(6) Where a foreign enterprise is carrying on
business in a contracting state through a
broker, general commission agent or any
other agent of an independent status
(who are performing such roles in
ordinary course of their business), no PE is
deemed to be created by foreign
enterprise in contracting state
Where a person in the contracting
state acts exclusively or almost
exclusively on behalf of one or more
foreign enterprise to which it is closely
related, then such person shall not be
deemed to be an independent agent.
A person is considered to be closely
related to an enterprise, if either one
possesses directly or indirectly more
than 50% of the beneficial interests in
the other or if a third person
possesses directly or indirectly more
than 50% of the beneficial interests in
both the person and enterprise.
For queries or business enquiries relating to our international tax services, please contact as below:
Simant Prakash
Managing Director, Five Elements Advisory
Email:sprakash@5eadvisory.com
Mobile: +254(0)789 399 685

3. Information provided here is of general nature and is not intended to address the circumstances of any
particular individual or entity. Although we endeavor to provide accurate and timely information, there
can be no guarantee that such information is accurate as of the date of it is received or that it will continue
to be accurate in future. No one should action such information without appropriate professional advice
and after a thorough examination of the particular situation.
© 2015 Five Elements Advisory, all rights reserved
www.5eadvisory.com
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