It can, because a presence does not require premises. The treaty tests a fixed place of business and a dependent agent separately, so even with no office, a person who habitually plays the principal role leading to the conclusion of contracts for you may create one. What matters is what the person actually does: whether they negotiate terms, whether the company routinely accepts what they agree, and whether they work exclusively or almost exclusively for you. A job title decides nothing. Before the first hire in a new country, look at the intended role honestly and price the consequence into the decision.
What are the tax steps for independent agent and permanent establishment?
- 15+Years of the founder's cross-border experience
- 18,000+Clients served across our offices in India, the USA, Canada and the UAE
- 5.0Google rating
- 4Global offices — India, USA, Canada & UAE
The treaty tests a fixed place of business and a dependent agent separately, with carve-outs for genuinely preparatory activity. Each step forecloses or preserves an option in the next one, which is why the order is not cosmetic.
The steps, in order
The treaty tests a fixed place of business and a dependent agent separately, with carve-outs for genuinely preparatory activity. Once the threshold is crossed, the profits attributable to that presence are taxable locally and a return is required whether or not tax is owed.

The exception that catches people
A permanent establishment can be created by a person rather than a place: an agent who habitually concludes contracts, or an employee whose home has become your office.
What to do next
The full treatment — who it binds, the deadline, the penalty and the fixed fee — is on Independent agent and permanent establishment — international tax. The first call establishes whether there is work to do. Everything after that is quoted.
Checked and signed off for the 2025 and 2026 filing seasons by Udit Gupta, International Tax, Cross-Border Tax & Transfer Pricing Expert, Legal Quotient Consultants. General information, not advice for your circumstances — call our 24-hour helpline to discuss your own position.
What these engagements turn on
Agent contract reviewed before the selling season began abroad
A company was about to appoint a representative to build sales in another country and had drafted an agreement calling the person an independent contractor. We examined what the role would involve in practice: whether the representative would negotiate terms, work for other principals, and bear any risk of their own business. The engagement produced a written assessment of the presence risk under the relevant treaty, amendments to the agreement so that its terms matched a genuinely independent arrangement, and a note of the operational limits the company would need to observe for that conclusion to hold.
Read how this one runsHome office of a single employee tested against the treaty
An employee relocated for family reasons and continued working for a company with no other presence in that country. Nobody had considered whether the arrangement created a taxable presence. We established how long it was expected to last, whether the company required the arrangement or merely permitted it, who paid for the space, and what work was performed there for which market. The engagement produced a documented analysis against the fixed place and dependent agent tests, a conclusion the company could rely on, and a set of conditions to monitor as the arrangement continued.
Read how this one runsFiling obligation met in a year with no attributable profit
A company accepted that its activity in another country had crossed the treaty threshold, but the operation had made no profit and the directors saw nothing to file. We explained that the return is required once the threshold is crossed regardless of the result, and prepared the attribution of profit to that presence on the company's own analysis. The engagement produced a filed return for the period, an attribution report supporting the figures, and a record of the position taken, which left the company stating its own case rather than answering an assessment raised without it.
Read how this one runsPreparatory activity carve-out documented for a storage arrangement
Goods were held at a third-party facility abroad and shipped to customers from there, and the company had assumed the carve-out for storage applied without recording why. We described what actually happened at the site, who instructed the operator, whether orders were processed or stock managed commercially from that country, and what else the group did there. The engagement produced a documented application of the carve-out under the specific treaty, a conclusion on the current arrangement, and a list of the operational changes that would take the activity outside it if the business expanded.
Read how this one runsContract conclusion authority traced through emails and order forms
An enquiry asserted that a local representative was concluding contracts, while the company maintained that head office signed everything. We collected the correspondence, quotations and order confirmations for a sample of deals and traced who set the price, who negotiated the terms and whether head office ever changed what had been agreed. The engagement produced an evidenced account of how deals were actually made, a written response to the enquiry addressing the dependent-agent test directly, and advice on the changes to authority and process needed for the company's position to remain sustainable.
Read how this one runsProfit attribution prepared after a presence was accepted
A company concluded that its activity abroad had created a taxable presence and needed to work out how much profit belonged there. We treated the presence as if it were a separate enterprise, identifying the functions performed by the people in that country, the assets used and the risks assumed, and attributing income and expenses accordingly. The engagement produced an attribution report, returns for the open years prepared on that basis, and a transfer pricing record supporting the dealings between the presence and the rest of the company, so the basis of every figure in the returns can be traced to the functional analysis behind it.
Read how this one runsOne Salesperson Abroad, and a Corporate Filing Obligation
A single employee with authority to conclude contracts can create a taxable presence for the whole company. The review tests what the person actually does against the treaty article, and where a presence exists, works out what profit is attributable to it.
Read how this one runsA Taxable Presence Created Without an Office
A dependent agent habitually concluding contracts can create a permanent establishment where there is no premises at all. The review tests what the person actually does against what the treaty describes.
Read how this one runsAll case studies — every published engagement in one place.
Core International & Cross-Border Tax Services
Strategy and compliance for income, assets and families spread across borders.
Industries & Client Types We Serve Worldwide
- Foreign VAT / GST / sales tax registrations
- Marketplace withholding reviews
- Inventory nexus & PE analysis
- Multi-currency books reconciled
- Cross-border revenue sourcing & withholding
- IP structuring with real substance
- Equity for cross-border teams
- U.S. expansion: entity & PE setup
- Reg 105 / 102 waivers
- Permanent establishment risk
- Partner mobility planning
- Cross-border withholding recovery
- Section 216 rental returns
- FIRPTA withholding recovery
- Section 116 clearance
- Treaty credit optimization
- Transfer pricing documentation (s.247)
- Customs value vs transfer price
- Foreign affiliate reporting (T1134)
- Country-by-country reporting
Performance income is taxed where earned — Regulation 105 in Canada, withholding agreements in the U.S. — with special treaty articles overriding the usual rules.
Performance income is taxed where the performance happens, and the deduction is usually taken at source on the gross fee before expenses. Recovering the difference is a filing exercise in the other country, and it only works if the tour, the residency and the withholding certificates were documented while the work was being done.
- Reg 105 & U.S. CWA agreements
- Multi-state & country calendars
- Touring income allocation
- Royalty & image-rights withholding
- Residency analysis before moving
- Employer payroll exposure
- Totalization & social security
- Foreign tax credits
- Treaty access & PPT reviews
- FAPI & surplus computations
- Withholding-efficient routing
- Governance & substance
Questions that come up on Independent agent and permanent establishment — international tax
It may be. A home can become a fixed place of business where the company effectively has it at its disposal and the work done there is part of the business rather than incidental. The analysis turns on the facts: how long the arrangement lasts, whether the company requires or expects the person to work there, whether it pays for the space, and what the employee actually does. A short secondment with the work performed for the local market looks very different from a settled arrangement building a customer base. Establish the facts before the arrangement becomes long-standing, because duration is part of the test.
Usually yes. Once the threshold is crossed the profits attributable to that presence are taxable locally, and a return is required whether or not tax turns out to be owed. Groups routinely miss this because they reason from the tax rather than from the obligation: there was no profit, so they assume there was nothing to file. That reasoning also forfeits the chance to state your own attribution of profit, leaving the authority to make its own. Where the answer on the threshold is genuinely uncertain, filing and disclosing the position is usually better than staying silent and being found later.
Independence is about substance, not the word used in the contract. An agent acting in the ordinary course of its own business, for several principals, bearing its own entrepreneurial risk and not subject to detailed instruction, is generally independent and does not create a presence for the principal. An agent who works exclusively or almost exclusively for one company, follows its instructions and carries none of the risk of its own activity is dependent, whatever the agreement calls it. The distinction is worth testing before appointment, because the commercial arrangement can often be structured either way while the trading objective stays the same.
Not automatically. Treaties carve out activity that is genuinely preparatory or auxiliary, and storing or delivering goods can fall inside that carve-out. The exception narrows as the activity grows into part of the main business: a facility from which orders are processed, stock is managed as a commercial function and customers are served looks less like storage and more like operations. Some treaties also combine related activities across locations, so several small carve-out activities can amount to a presence together. Describe what actually happens at the site, then test it against the wording of the specific treaty rather than a general impression.
It is the clearest form of the risk, and formal signature is not even necessary for it to arise. Where a person habitually concludes contracts in your name, or habitually plays the principal role leading to their conclusion with the company routinely accepting the terms without change, the dependent-agent test is in play. Groups sometimes respond by moving signature back to head office while the local person continues to negotiate everything. That does not answer the question, because the test looks at who does the work of making the deal. Review what happens in practice and, where necessary, change the practice rather than the paperwork.
The part of the international agreement that reallocates a share of taxing rights over the very largest and most profitable groups to the jurisdictions where their customers and users are, regardless of physical presence — plus a simplified approach to routine marketing and distribution returns. It is aimed at the digitalised economy problem that physical-presence rules could not reach, and its implementation is still moving, which is why we read the current instrument rather than the original blueprint. See BEPS and Pillar Two.
A branch is the same legal entity operating in another country, so its profits and losses sit with the parent and it is taxed there as a permanent establishment. A subsidiary is a separate company, taxed in its own right, with dividends and withholding on the way home. Losses, repatriation cost and liability usually decide it, and the answer differs by country pair. See branch vs subsidiary.



