Dependent Agent Permanent Establishment Thresholds under BEPS Action Seven Negotiations
Post-BEPS Action 7 establishes a permanent establishment when local personnel habitually negotiate core contract terms, regardless of formal offshore signatures.
Dependent Agent
Meaning
Representative status applies to a person or entity that habitually concludes contracts on behalf of a foreign enterprise. A dependent agent lacks the independence to act as an autonomous broker or general commission agent. This role involves the negotiation of the substantive parts of a contract even if the final signature is applied by someone else in another country.
Tax law treats the actions of this person as the actions of the principal.
Economic Linkage
The relationship between the two parties is defined by the degree of control the principal exerts over the work of the agent. If the person works exclusively for one company and follows detailed instructions on how to conduct sales, they likely qualify as a dependent agent. This distinction determines where the profit from a sale should be taxed.
Contractual Power
Authorities look beyond the title of a job to see who actually makes the decisions that bind the firm. In many cases, a dependent agent is an employee of a local subsidiary that provides sales support to a foreign headquarters. Power resides locally.
The contractual reality dictates the tax treatment.
Local Presence
Maintaining such a representative allows a firm to enter a market without opening a full branch or factory. The presence of a dependent agent often triggers the same tax obligations as a permanent branch.