Taxation of Foreign Suppliers in Iraq

Permanent establishment under the OECD Convention

The guidelines adopted by many countries under tax treaties modelled after the OECD Convention revolve around whether a subject business has created a permanent establishment within a country's jurisdiction. Under the OECD Convention, the existence of a permanent establishment must be accompanied by the following factors:

• There must be a link between the place of business and a specific geographic point, as well as a degree of permanence with respect to the taxpayer;
• The company must have a place of business; and
• The business of the enterprise must be carried out wholly or partially at the fixed place.

Accordingly, a permanent establishment must comprise a fixed and commercially coherent space which the foreign enterprise uses to carry out its business. Mere presence is not enough as that does not necessarily translate into doing business within the space. The facilities need not be used exclusively by the foreign enterprise or for the business subject to taxation. Rather, the facilities must belong to the foreign enterprise and not to another unrelated entity.

Many treaties explicitly exclude from the definition of 'permanent establishment' places where certain activities are taking place. Generally, these exclusions apply to activities conducted at the fixed place of business, such as activities related to the storage, display or delivery of goods, merchandise or other so-called 'preparatory or auxiliary activities', as well as purchasing or information-gathering activities.

Taxation of foreign suppliers