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Determining if there is a permanent establishment

The key questions for determining whether a company has a permanent establishment in the UK are as follows:

  • Is there a fixed place of business in the UK?
  • Is there a dependent agent in the UK?
  • Are the activities undertaken 'preparatory and auxiliary'?
  • Is a business carried on through the permanent establishment?
  • If a Double Tax Agreement is in place, does a permanent establishment also exist under the provisions of this agreement?

Best practice to reduce the risk of inadvertently creating a permanent establishment in the UK

Fixed place of business:

  • The non-resident company should not have a lease or rental agreement; and should not own property in the UK.
  • The non-resident company should not have the right to use any premises in the UK – for example, premises that are owned by another group company, or an employee. Access to any such premises should be limited – for example, employees of the non-resident company should not be issued entry passes; and should be treated as visitors.
  • The non-resident company should not regularly use the same premises, for example a stand at a trade fair or a particular hotel room.
  • Employees of the non-resident company should not have business cards showing a UK address.
  • The website of the non-resident company should not advertise a UK address (although a group website could show a UK address as belonging to a subsidiary).
  • Any advertisements or stationery of the non-resident company should not show a UK address.

Dependent agent:

  • All prices should be determined outside the UK, including any bulk discounts. Prices should only be communicated in the UK.
  • Any price negotiation should take place outside the UK.
  • Other contractual terms should be determined or negotiated outside the UK.
  • Contracts with customers should not be signed in the UK. A permanent establishment should only be created if contracts are 'habitually' concluded in the UK, and employees of the non-resident company may therefore attend occasional meetings in the UK to discuss contractual terms without necessarily creating a permanent establishment in the UK. However, best practice would suggest that this should happen only where it is not possible to do otherwise.
  • BEPS Action 7 consideration: UK personnel or overseas personnel present in the UK should limit UK activity to promotion and advertising and this will ensure that a permanent establishment is not created.

 Preparatory and auxiliary activities:

  • Where a fixed place of business or a dependent agent is unavoidable, the activities undertaken in the UK should be preparatory and auxiliary to the main trading activities of the non-resident company.
  • BEPS Action 7 consideration: core business activities should not be fragmented either internally or between connected parties with a view to individually meeting the preparatory or auxiliary exception


  • If a non-resident company has an employee based in the UK, the employee should not be given authority to negotiate or conclude contracts, otherwise a permanent establishment will be created. This restriction can be written specifically into the employment contract and followed in practice.
  • Similar restrictions can be written into inter-company agreements if there is a risk that a subsidiary could be a dependent agent.

Disclaimer: This note does not contain a full statement of the law and it does not constitute legal advice. Please contact us if you have any questions about the information set out above.

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