Words and Phrases - "habitual"

Proposed change in BEPS final action plan to agency PE effectively elevates "habitually" requirement (p. 1142)

[A]rticle 5(5) will no longer require the dependent agent to conclude contracts in the principal's name; it will be sufficient that the dependent agent habitually plays the principal role leading to the routine conclusion of contracts without material modification by the enterprise — that is, the principal. Given that dependent agents will likely play that role, the existence of a PE will often largely depend on whether the habituality requirement can be considered fulfilled.

Transient less risky than close to 6 months/recurrence v. habituality (p. 1143)

The longer the duration, the higher the risk of creating a PE. In fact, a mere transient presence in a country is less likely to give rise to a PE than is a presence amounting to almost six months. [fn 6: Oliver R. Hoor, "The Concept of Permanent Establishments," 54 Eur Tax'n 124 (2014); and Hendrik-Jan van Duijn and Rocco O. Ijsselmuiden, "Will the Netherlands Threshold for Levying Taxes on PEs Be Lowered by Proposed Changes in Line With BEPS Action 7: Preventing the Artificial Avoidance of PE Status?" 56 Eur Tax'n 81 (2016).] According to some German literature, habituality cannot be established if the activity of the dependent agent in the other country lasts for less than six months. [fn 7: 'Franz Wassermeyer, Kommentar OECD Musterabkommen 195 (2014).]

An activity that is exercised recurrently is generally considered habitual, even if its duration does not exceed six months. Accordingly, a dependent agent who spends every Thursday in another country negotiating contracts that are binding on his employer is at a high risk of creating a PE for his employer.

The recurrence is so important for the characterization of an agency PE that some authors think it should be the only criterion for habituality. [fn 8: Brian Arnold, "Time Thresholds in Tax Treaties," 62 Bull. Int'l Tax'n 230 (2008). For an interpretation of the word "habitual" as a synonym of "frequent," see Tim Wustenberghs and Ethel Puncher, "Zimmer à la Belge: Could a Commissionaire Arrangement Create an Agency Permanent Establishment in Belgium?" 65 Bull. Int'l Tax'n 242 (2011).]…

Intention of recurrence may establish PE at outset (p. 1143)

The attestable intention of the parties that the dependent agent act recurrently in the other state might be sufficient for the tax authorities to consider that a PE exists as of the beginning of the dependent agent's activities in the other state. [fn 10: Günther Strunk, Bert Kaminski, and Stefan Köhler, DBA Kommentar 117 (2016).)

Regular recurring trips aggregating less than 60 days each year belwo the threshold (p. 1143)

In 2005 the German Federal Tax Court (Bundesfinanzhof) issued a decision in a case in which a director of a Portuguese company traveled to Germany eight times in 1995, 10 times in 1996, 13 times in 1997, and 14 times in 1998 [fn 12: Bundesfinanzhof, case no. IR 87/04 (2005).] During each trip, which lasted two to five days, he concluded contracts with clients and contacted actual and prospective clients. In 1998 he spent 43 days in Germany.

The German Federal Tax Court affirmed that the director's presence in Germany in 1998 should not trigger an agency PE for the Portuguese company. It said a total presence of less than 60 days in one year is insufficient to give rise to an agency PE, even if the agent was present at least once a month in a six-month period and traveled to Germany for four subsequent years.

Lower threshold for seasonal businesses or exclusive outlet (p. 1145)

Whether the business is temporary by nature will be important in determining whether a PE exists. Examples of business like that are seasonal businesses, such as ice cream shops that open only in the summer,…

Also of note is whether the business activities are carried out exclusively in the country where the agent acts for the principal. Consider a wine producer in State A that sells all its wine at a festival in State B…. [T]hat agent would be at high risk of creating a PE for the wine producer... .