OT41642 - Non-Residents Working on the UK Continental Shelf: Double Taxation Agreements - Long term offshore construction type work - Is there a fixed place of business?
The first question which arises is whether the construction vessel itself constitutes a permanent establishment of the non-resident company by virtue of the Permanent Establishment Article of the relevant Double Taxation Treaty; that is whether the vessel is a 鈥渇ixed place of business鈥� through which the business of the company is wholly or partly carried on.
The OECD Commentary on Article 5(1) of the Model Convention explains what is meant by a 鈥渇ixed place of business鈥�. It must be:
- established at a distinct place
- with a certain degree of permanence
It then goes on to say that 鈥渋f the place of business was not set up merely for a temporary purpose it can constitute a permanent establishment even though it existed in practice only for a short period of time because of the special nature of the activity 鈥�..鈥�.
Since the place of business must be fixed it also follows that a permanent establishment can be deemed to exist only if the place of business has a certain degree of permanence i.e. if it is not of a purely temporary nature.
In HMRC鈥檚 view a vessel may be regarded as a permanent establishment even though it may alter its location from time to time. The OECD Commentary on Article 5(1) says that equipment may constitute a fixed place of business even though it is not fixed to the soil on which it stands but remains on a particular site. A single place of business will generally be considered to exist where the nature of the business is such that a particular location within which the activities are moved may be identified as comprising a coherent whole commercially and geographically with respect to that business. This would apply to a construction vessel operating at a location or a series of locations at a single North Sea construction site.