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New Zealand law explained for everyone

Income Tax Act 2007

Schedule 23: Meaning of permanent establishment

You could also call this:

“What counts as a fixed business location for tax purposes”

A permanent establishment is a fixed place where a business operates, either fully or partly. This can include places like offices, factories, mines, or construction sites that last more than 6 months. It can also mean working in a country for more than 183 days in a year, doing things like exploring for natural resources or using big equipment.

Sometimes, a business can have a permanent establishment even without a fixed place. This can happen if someone regularly makes deals for the business in that country or if the business provides services there for more than 183 days in a year. However, if a business just uses a place for storing things, displaying products, or collecting information, it’s not usually considered a permanent establishment.

The rules about permanent establishments are quite detailed and have some exceptions. For example, if a company from one country controls a company in another country, that doesn’t automatically make it a permanent establishment. There are also special rules for when businesses are closely related to each other.

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View the original legislation for this page at https://legislation.govt.nz/act/public/1986/0120/latest/link.aspx?id=LMS58227.

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Money and consumer rights > Taxes
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23Meaning of permanent establishment

Permanent establishment

  1. The term permanent establishment means a fixed place of business through which the business of a person or other entity (an enterprise) is wholly or partly carried on.

  2. The term permanent establishment includes especially—

  3. a place of management; and
    1. a branch; and
      1. an office; and
        1. a factory; and
          1. a workshop; and
            1. a mine, an oil or gas well, a quarry or any other place of extraction of natural resources.

              1. A building site, or a construction, installation or assembly project, or supervisory activities in connection with that building site or construction, installation or assembly project, constitutes a permanent establishment if it lasts more than 6 months.

              2. An enterprise shall be deemed to have a permanent establishment in a country or territory (the State) and to carry on business through that permanent establishment if for more than 183 days in any 12-month period—

              3. it carries on activities in that State which consist of, or which are connected with, the exploration for or exploitation of natural resources, including standing timber, situated in that State; or
                1. it operates substantial equipment in that State.

                  1. Notwithstanding the provisions of clauses 1 and 2 where an enterprise of a State performs services in another State (the other State)—

                  2. through an individual who is present in that other State for a period or periods exceeding in the aggregate 183 days in any 12-month period, and more than 50% of the gross revenues attributable to active business activities of the enterprise during this period or periods are derived from the services performed in that other State through that individual; or
                    1. for a period or periods exceeding in the aggregate 183 days in any 12-month period, and these services are performed for the same project or for connected projects through 1 or more individuals who are present and performing such services in that other State—
                        1. the activities carried on in that other State in performing these services shall be deemed to be carried on through a permanent establishment of the enterprise situated in that other State, unless these services are limited to those mentioned in clause 7 which, if performed through a fixed place of business, would not make this fixed place of business a permanent establishment under the provisions of that clause. For the purposes of this clause, services performed by an individual on behalf of one enterprise shall not be considered to be performed by another enterprise through that individual unless that other enterprise supervises, directs or controls the manner in which these services are performed by the individual.

                      1. For the sole purpose of determining whether the time period referred to in clauses 3, 4, and 5 has been exceeded,—

                      2. where an enterprise of a State carries on activities referred to in clause 3, 4, or 5 for a period of more than 30 days and these activities are carried on during periods of time that do not last more than the period stipulated in those clauses; and
                        1. connected activities are carried on in that other State during different periods of time, each exceeding 30 days, by 1 or more enterprises closely related to the first-mentioned enterprise.
                            1. These different periods of time shall be added to the period of time during which the first-mentioned enterprise has carried on the activities referred to in clause 3, 4, or 5.

                          1. Notwithstanding the preceding provisions of this section, the term permanent establishment shall be deemed not to include—

                          2. the use of facilities solely for the purpose of storage, display, or delivery of goods or merchandise belonging to the enterprise:
                            1. the maintenance of a stock of goods or merchandise belonging to the enterprise solely for the purpose of storage, display, or delivery:
                              1. the maintenance of a stock of goods or merchandise belonging to the enterprise solely for the purpose of processing by another enterprise:
                                1. the maintenance of a fixed place of business solely for the purpose of purchasing goods or merchandise or of collecting information, for the enterprise:
                                  1. the maintenance of a fixed place of business solely for the purpose of carrying on, for the enterprise, any other activity:
                                    1. the maintenance of a fixed place of business solely for any combination of activities mentioned in subclauses (a) to (e)—
                                        1. Provided that such activity, or in the case of subclause (f), the overall activity of the fixed place of business, is of a preparatory or auxiliary character.

                                      1. Clause 7 shall not apply to a fixed place of business that is used or maintained by an enterprise if the same enterprise or a closely related enterprise carries on business activities at the same place or at another place in the same State and—

                                      2. that place or other place constitutes a permanent establishment for the enterprise or the closely related enterprise under the provisions of this Schedule; or
                                        1. the overall activity resulting from the combination of the activities carried on by the 2 enterprises at the same place, or by the same enterprise or closely related enterprises at the 2 places, is not of a preparatory or auxiliary character—
                                            1. Provided that the business activities carried on by the 2 enterprises at the same place, or by the same enterprise or closely related enterprises at the 2 places, constitute complementary functions that are part of a cohesive business operation.

                                          1. Notwithstanding the provisions of clauses 1 and 2 but subject to the provisions of clause 9, where a person is acting in a State on behalf of an enterprise and, in doing so,—

                                          2. habitually concludes contracts, or habitually plays the principal role leading to the conclusion of contracts that are routinely concluded without material modification by the enterprise, and these contracts are—
                                            1. in the name of the enterprise; or
                                              1. for the transfer of the ownership of, or for the granting of the right to use, property owned by that enterprise or that the enterprise has the right to use; or
                                                1. for the provision of services by that enterprise; or
                                                2. manufactures or processes in a State for the enterprise goods or merchandise belonging to the enterprise,—
                                                    1. that enterprise shall be deemed to have a permanent establishment in that State in respect of any activities which that person undertakes for the enterprise, unless the activities of such person are limited to those mentioned in clause 7 which, if exercised through a fixed place of business (other than a fixed place of business to which clause 7.1 would apply), would not make this fixed place of business a permanent establishment under the provisions of that subsection.

                                                  1. Clause 8 shall not apply where the person acting in a State on behalf of an enterprise of the other State carries on business in the first-mentioned State as an independent agent and acts for the enterprise in the ordinary course of that business. Where, however, a person acts exclusively or almost exclusively on behalf of 1 or more enterprises to which it is closely related, that person shall not be considered to be an independent agent within the meaning of this clause with respect to any such enterprise.

                                                  2. The fact that a company which is a resident of a State controls or is controlled by a company which is a resident of the other State, or which carries on business in that other State (whether through a permanent establishment or otherwise), shall not of itself constitute either company a permanent establishment of the other.

                                                  3. For the purposes of this clause, a person or enterprise is closely related to an enterprise if, based on all the relevant facts and circumstances, 1 has control of the other or both are under the control of the same persons or enterprises. In any case, a person or enterprise shall be considered to be closely related to an enterprise if 1 possesses directly or indirectly more than 50% of the beneficial interest in the other (or, in the case of a company, more than 50% of the aggregate vote and value of the company’s shares or of the beneficial equity interest in the company) or if another person or enterprise possesses directly or indirectly more than 50% of the beneficial interest (or, in the case of a company, more than 50% of the aggregate vote and value of the company’s shares or of the beneficial equity interest in the company) in the person and the enterprise or in the 2 enterprises.