AB LLC – South Africa Tax Court finds that a client’s boardroom can be a PE of a consultant

5(1) of the OECD Model Treaty defines a permanent establishment as "a fixed place of business through which the business of an enterprise is wholly or partly carried on" and 5(2) states that the term "includes especially" places listed in subparas. (a) to (f). The OECD Commentary states these listed examples "constitute permanent establishments only if they meet the requirements of paragraph 1," i.e. they must also represent a fixed place of business.

A US corporation, which spent 15 months based in the boardroom in South Africa of a South African client providing consulting services, argued that this limitation also applied to the services PE paragraph (i.e., 5(2)(k)) of the US-South Africa Treaty, so that the corporation’s provision of the consultancy services for a period of more than 183 days was exempted under the business profits Article as it did not have a fixed place of business there. In rejecting this argument, Vally J noted inter alia that 5(2)(k) "is very different …[as] it does not refer to a place of work, but rather to a form of work."

However, even if the OECD comment applied, the client’s boardroom nonetheless constituted a fixed place of business (in contrast to Dudney, where "a sole individual providing services moved from one area to another.")

Neal Armstrong. Summaries of AB LLC and BD Holdings LLC v. Commrs. of South African Revenue Services, Case No. 13276, 15 May 2015, South Africa Tax Court under Treaties – Art. 5, Art. 7.