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Page 40

Rather than transferring knowhow or providing services to another enterprise directly, an enterprise may provide for the secondment of one of its employees to the other enterprise for the purpose of bringing expert skills or knowledge to that other enterprise. As noted above in section 1.2.3, this may be considered by the jurisdiction of which the supplying enterprise is a resident as an outbound transfer of intellectual property, in respect of which an amount should be treated as taxable income of the supplying enterprise (even if no fee is charged under the secondment arrangement).

If a fee is charged, then there may be characterisation issues in the jurisdiction of the receiving enterprise.

For example. ForCo may agree to second a skilled manager to SubCo for a limited period for the purpose of assisting SubCo to put in place new management processes in SubCo and to train SubCo employees in their operation. Under the contract. ForCo is entitled to a fee in addition to reimbursement of expenses relating to the manager's remuneration. In this way, knowhow developed by ForCo may be transferred to SubCo through the work performed by the secondee for SubCo.

In these circumstances, the payment to the supplying enterprise is likely to be characterised in many jurisdictions as a payment for the provision of services. However, some branch reporters considered that in their jurisdiction the fee might be characterised as a royalty (which would be subject to gross taxation at source), e.g. as a payment for the supply of knowhow, or as fees for technical services.

Where the fee is regarded as services income, a number of branch reporters were of the view that the activities of the secondee could be taken into consideration in determining whether ForCo should be regarded as having a PE in the other jurisdiction, even where the work functions performed by the secondee related only to the business of SubCo. Others, such as Israel, the Netherlands and Norway, disagreed, while the Ukraine report indicated that domestic law provided an express exception so that personnel secondment services rendered by a non-resident SP would not comprise a services PE.


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