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The UN Commentary on Article 5 explains that

“paragraph 3. subparagraph (b), deals with the furnishing of sendees, including consultancy services, which are not covered specifically in the OECD Model Convention in connection with the concept of permanent establishment. It is believed that management and consultancy sendees should be covered because the provision of such services in developing countries by corporations of industrialized countries often involves very large sums of money.”

The UN Commentary also notes

“Subparagraph (b) encompasses service activities only if they ‘continue (for the same or a connected project) within a Contracting State for a period or periods aggregating more than six months within any twelve-month period'. The words ‘for the same or a connected project" are included because it is not appropriate to add together unrelated projects in view of the uncertainty which that step involves and the undesirable distinction it creates between an enterprise with, for example, one project of three months' duration and another with two unrelated projects, each of three months’ duration, one following the other. However, some members find the injection of a ‘project’ limitation either too easy to manipulate or too narrow in that it might preclude taxation in the case of a continuous number of separate projects, each of four or five months' duration.”

The provision only applies to the furnishing of services “within a Contracting State”. This is generally interpreted as meaning that the services must be physically performed in that jurisdiction. However, not all countries follow this interpretation. India, for example, takes the view that ‘for furnishing of services in a State, physical presence of an individual is not essential”. Under this interpretation, services performed abroad for the benefit of a resident of a jurisdiction may be regarded as having been furnished within that jurisdiction. A few treaties specify that the services PE provision is not limited to activities carried on in the jurisdiction, e.g. in Denmark’s treaties with Singapore and Chinese Taipei.

Paragraph 4 of Article 5 of the UN Model excludes certain preparatory and auxiliary activities from the scope of PE. While this paragraph applies equally to services as to other business activities, it is unlikely to have much, if any, effect in the context of a services PE under subparagraph 3(b), since the exclusions refer to “facilities used for the purpose of storage or display”, a stock of goods or merchandise. or a fixed place of business.

The branch reports indicate that the vast majority of treaties that include a services PE provision adopt the UN Model provision, or provisions based on this.


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