International Tax

What is a permanent establishment for U.S. federal income tax purposes?

A permanent establishment term is used in double taxation agreements to determine when a non-resident is taxable in a country; that is, an enterprise in one country will not be liable to the income tax of the other country unless it has a "permanent establishment" through which it conducts business in that other country.

The concept of permanent establishment defines the requisite level of presence and contacts in a country to support income taxation at source. A permanent establishment is usually defined as a place of management, a branch, an office, a factory, a workshop or a building site or assembly project that exists for more than a certain period (6 to 12 months), and, in certain circumstances, an agent or permanent representative. The definition usually excludes the use of facilities solely for purposes of storage, display or delivery of goods belonging to the enterprise and other similar restrictions.

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