ARTICLE 7
Business Profits
1. The profits of an enterprise of a Contracting state shall
be taxable only in that state unless the enterprise carries on
business in the other Contracting state through a permanent
establishment situated therein. If the enterprise carries on
business as aforesaid, the profits of the enterprise may be taxed
in the other state but only so much of them as is attributable to
a) that permanent establishment; b) sales in the other state of
goods or merchandise of the same or similar kind as those sold
through that permanent establishment; or c) other business
activities carried on in the other state of the same or similar
kind as those effected through that permanent establishment.
2. Subject to the provisions of paragraph 3, where an
enterprise of a Contracting state carries on business in the
other Contracting state through a permanent establishment
situated therein, there shall in each Contracting state be
attributed to that permanent establishment the profits which it
might be expected to make if it were a distinct and independent
enterprise engaged in the same or similar activities under the
same or similar conditions and dealing wholly at arm’s-length
with the enterprise of which it is a permanent establishment and
other enterprises controlling, controlled by or subject to the
same common control as that enterprise. In any case where the
correct amount of profits attributable to a permanent
establishment is incapable of determination or the determination
thereof presents exceptional difficulties, the profits
attributable to the permanent establishment may be estimated on a
reasonable basis. The estimate adopted shall, however, be such
that the result shall be in accordance with the principles
contained in this Article.
3. In the determination of the profits of a permanent
establishment, there shall be allowed as deductions expenses
which are incurred for the purposes of the business of the
permanent establishment, including a reasonable allocation of
executive and general administrative expenses, research and
development expenses, interest, and other expenses incurred for
the purposes of the enterprise as a whole (or the part thereof
which includes the permanent establishment), whether incurred in
the State in which the permanent establishment is situated or
elsewhere, in accordance with the provisions of and subject to
the limitations of the taxation laws of that state. However, no
such deduction shall be allowed in respect of amounts, if any,
paid (otherwise than toward reimbursement of actual expenses) by
the permanent establishment to the head office of the enterprise
or any of its other offices, by way of royalties, fees or other
similar payments in return for the use of patents, know-how or
other rights, or by way of commission or other charges for
specific services performed or for management, or, except in the
case of banking enterprises, by way of interest on moneys lent to
the permanent establishment. Likewise, no account shall be
taken, in the determination of the profits of a permanent
establishment, for amounts charged (otherwise than toward
reimbursement of actual expenses), by the permanent establishment
to the head office of the enterprise or any of its other offices,
by way of royalties, fees or other similar payments in return for
the use of patents, know-how or other rights, or by way of
commission or other charges for specific services performed or
for management, or, except in the case of a banking enterprise,
by way of interest on moneys lent to the head office of the
enterprise or any of its other offices.
4. No profits shall be attributed to a permanent
establishment by reason of the mere purchase by that permanent
establishment of goods or merchandise for the enterprise.
5. For the purposes of this Convention, the profits to be
attributed to the permanent establishment as provided in
paragraph 1(a) of this Article shall include only the profits
derived from the assets and activities of the permanent
establishment and shall be determined by the same method year by
year unless there is good and sufficient reason to the contrary.
6. Where profits include items of income which are dealt
with separately in other Articles of the Convention, then the
provisions of those Articles shall not be affected by the
provisions of this Article.
7. For the purposes of the Convention, the term "business
profits" means income derived from any trade or business
including income from the furnishing of services other than
included services as defined in Article 12 (Royalties and Fees
for Included Services) and including income from the rental of
tangible personal property other than property described in
paragraph 3 (b) of Article 12 (Royalties and Fees for Included
services).