Division of Financial Services
Tax
In general, permanent establishment (PE) is defined as a fixed place of business through which the business of an enterprise is wholly or partly carried on. The phrase “fixed place of business” can be deceiving though, as it can include more than just physical spaces, such as offices or buildings. Some of the common ways a PE can occur in another country are discussed on this page.
If any entity, including non-profit entities such as Cornell, are found to have established a PE in another country as defined by the country’s income tax law, the said entity may be subject to higher tax rates and additional taxes. Legal or reputational repercussions could occur as well. That is why it is extremely important to inform the university's Navigate team if you or your unit are considering doing business abroad. Provide the Navigate team with the details of the planned engagement, and they will provide you with the appropriate advice. As stated in our Doing Business Abroad page, theTax Office is part of the Navigate team and will work diligently to address any tax concerns for such activities abroad.
In general, there are two common ways to create a PE in a foreign country, with a third way becoming more and more common. We will highlight the general rules of these three avenues of creating a PE and how this concern is, and should be, handled.
Article 5 of the Model Tax Convention (PDF) (MTC) defines this PE as “a fixed place of business through which the business of an enterprise is wholly or partly carried on.” Some examples of a fixed place PE include a branch, place of management, factory, workshop, and mines or wells to extract natural resources. In general, these places do not have to owned, but merely rented or leased.
In addition to these places of business, a building or construction site is also considered as fixed place PE.
If an individual, whether employee or independent contractor, is able to act on our behalf and represent Cornell University whether in contracts or activities, then the MTC generally defines this as having a PE in the country as well.
Service PE is not included in the MTC of the OECD; however, it is included under the United Nations (UN) MTC (PDF), and as such, is being adapted by more and more countries. Under this UN MTC, Service PE is defined as “the furnishing of services, including consultancy service, by an enterprise through employees or other personnel.” While the MTCs may provide specific timelines, these are just “model” tax conventions for countries to use, and any time requirements of determining PE could be different from one country to the next.
Communication is key to staying in good legal standing regarding PE concerns. Please communicate your plans of foreign activities to the Navigate team. Any and all PE certifications should be sent through the Tax office for complete review.
