Germany Article 7 (Business Profits) Page

Australia	7	Finland	7	Latvia	7	Russia	7
Austria	7	France	4	Lithuania	7	Singapore	7
Belgium	7	Germany		Luxembourg	5	Slovak Republic	7
Brazil	7	Greece	3	Malaysia	7	Slovenia	7	4
Bulgaria	7	Hungary	7	Malta	7	South Africa	7	28
Canada	7	Iceland	7	Mexico	7	Spain	7
Chile		India	7	Netherlands	5	Sweden	7
China	7	Indonesia	7	New Zealand	7	Switzerland	7
Cyprus	7	Ireland	3	Norway	7	Turkey	7
Czech Republic	7	Italy	7	Poland	7	Ukraine	7
Denmark	7	Japan	7	Portugal	7	United Kingdom	7
Estonia	7	Korea	7	Romania	7	United States	7

Australia

There are no counterparts of paragraphs 4 and 6, but the Protocol of Signature indicates that a similar rule to that in paragraph 4 may be applied. The counterpart of 7 spells out which other articles are not affected.

The Protocol of Signature further provides that Article 7 is not to apply to profits of an enterprise from carrying on a business of any form of insurance, other than life assurance. (Also see note on Article 9.)

Austria

1954 There are counterparts of paragraphs 1 and 2 of the Model; paragraph 1 refers to the resident deriving profits as an entrepreneur or co-entrepreneur from an industrial or commercial enterprise. Paragraph 1 extends to income from letting, leasing or any other way of exploiting the enterprise.

Paragraph 3 is represented by a provision that the income of a permanent establishment shall be determined on the basis of the balance sheet, taking account of all expenditure attributable to the permanent establishment, including the general executive and administrative expenses of the enterprise.

The rule which was to appear as paragraph 4 of the Model is stated shortly. For insurance enterprises the ratio of gross premiums received by the permanent establishment to the total of the enterprise is used. There is provision for mutual agreement in such cases.

A sleeping partner is to be treated as within Article 7 if his participation carries with it a share in the property of the enterprise. Otherwise his income is to be assessed as interest.

2000 The article follows the Model, except for an additional paragraph numbered 7. This applies to income from participation in a partnership (Personengesellschaft). It also applies to remuneration derived by a partner for activities performed for the partnership, for the granting of loans or for the provision of commercial assets, provided that such remuneration, in accordance with the tax laws of the contracting state in which the permanent establishment is located, is attributed to the income of such partner from such permanent establishment.

The Protocol of Signature provides that a sleeping partner ("stiller Gesellschafter") is to be treated as an entrepreneur if his contribution entitles him to a share in the capital of the enterprise.

Belgium

The counterpart of paragraph 4 instead lays down that in the absence of regular bookkeeping or other information to determine the profits of a permanent establishment, the other state may tax it according to its own laws by reference to the profits normally made by similar enterprises.

Brazil

Paragraph 3 omits the words "whether in the state in which the permanent establishment is situated or elsewhere".

Bulgaria

The Protocol of Signature provides (a) that only that part of the income of a building site may be allocated to the contracting state in which the permanent establishment is situated as is derived from the carrying out of such activities. Where in connection with these activities or independently thereof, machinery or equipment is provided by the head office or another office of the enterprise or by unrelated persons, then the value of such supply is not to be attributed to the profits of the building site or assembly project:

(b) income which is attributable to the drawing of plans, projects or construction or research activities, as well as technical services, which a resident of a contracting state performs in that contacting state and which are connected with a permanent establishment maintained in the other contracting state, are not to be allocated to that establishment.

The Protocol of Signature provides in its paragraph 3 that with reference to Article 7:

(a) where an enterprise of a contracting state sells goods or merchandise or carried on business in the other contracting state through a permanent establishment situated therein, the profits of that permanent establishment are not to be determined on the basis of the total amount received therefore by the enterprise but only on the basis of the amount which is attributable to the actual activity of the permanent establishment for such sales or business.

(b) In the case of contracts, in particular for the survey, supply, installation or construction of industrial, commercial or scientific equipment or premises, or of public works, where the enterprise has a permanent establishment in the other contracting state, the profits of such permanent establishment are not to be determined on the basis of the total amount of the contract, but only on that part of the contract which is effectively carried out by the permanent establishment in the contracting state in which it is situated. Profits derived from the supply of goods to that permanent establishment or profits related to the part of the contract which is carried out in the contracting state in which the head office of the enterprise is situated are to be taxable only in that state.

(c) Payments received as a consideration for technical services, including studies or surveys of a scientific, geological or technical nature, or for engineering contracts including blue prints related thereto, or for consultancy or supervisory services are to be deemed to be payments to which the provisions of Article 7 of the treaty apply.

Canada

1981 An enterprise is taxable also if it has carried on business in the other state through a permanent establishment there. To be allowable, expenses must be deductible in the first place.

The Protocol of Signature protects the right of Canada to tax a person who is a member of a partnership on his profits attributable to a permanent establishment in Canada.

2001 An enterprise is taxable also if it has carried on business in the other state through a permanent establishment there. To be allowable, expenses must be deductible in the first place.

China

(a) Only the part of the profits of a building site or assembly project which derives from the activities may be attributed to it, and the value of the supply of machinery or equipment from the head or other office of the enterprise is not to be included.

(b) The value of plans, projects or construction or research activities, as well as engineering services, prepared or carried out in the state of residence is not to be attributed to the permanent establishment in the other state.

(c) Paragraph 3 is not to allow the deduction (other than as reimbursement of actual expenses) by the permanent establishment of royalties, fees etc for patent rights, commissions for specific services or management, or interest on money lent to the permanent establishment (except in the case of banks).

Denmark

1962 The counterpart of paragraph 1 extends to participations in the enterprise (but not to dividend income). The paragraph is to apply to income derived from the letting, leasing or any other form of exploiting the enterprise, as well as to capital gains (but see note on Article 13).

Paragraph 3 lays down instead a general rule that the profit of the permanent establishment is to be ascertained from the balance sheet. Interest and royalties between permanent establishments of the same enterprise are to be disregarded.

There is a reference to the principle in paragraph 4 of the Model. There is no equivalent of paragraphs 5 or 6.

Estonia

The equivalent of Model paragraph 4 says nothing about customary practices but provides that, insofar as in a contracting state, and in exceptional circumstances, the determination of the profits to be attributed to a permanent establishment under the equivalent of paragraph 2 is impossible or gives rise to unreasonable difficulties, nothing in the paragraph is to preclude the determination by an apportionment of the total profits of the enterprise to its various parts; the result, nevertheless, is to be in accordance with the principles of the article.

An additional paragraph preserves the right of a contracting state to apply its domestic law on the taxation of insurance business, limiting the rate chargeable, however, to 5.4% of the gross premiums.

The Protocol of Signature provides that the only profits which are to be attributed by the situs state to a building site, or a construction, assembly or installation project of an enterprise of the other contracting state, are those which are the result of such activities themselves.

Profits derived from the supply of goods connected with, or independent of, such activities, and effected by the principal permanent establishment or any other permanent establishment of the enterprise, or a third party, are not to be attributed by the situs state to the building site, construction, assembly or installation project, nor shall income from connected design, planning, engineering or research, or technical services, which a resident of the other contracting state performs in that other contracting state.

France

There is an additional paragraph dealing with the situation of partners in certain types of French enterprises entitled to a share of an undertaking.

A separate paragraph provides that the article is not to prevent either country taxing dividends etc from the other even if the dividends are not attributable to a permanent establishment.

Greece

Hungary

India

1959 and 1995 The expenses deductible under the equivalent of Model paragraph 3 are limited to those allowable according to the domestic law of the state in which the permanent establishment is situated. The 1984 Protocol and the Protocol of Signature to the 1995 treaty emphasise that no deduction is allowable (except for payments towards reimbursement of actual expenses) for intra-enterprise royalties, fees or similar payments, commissions for services or management, or for interest (except in the case of banking institutions). These Protocols also declare that the deductions in respect of the head office expenses referred to shall in no case be less than those allowable under the Indian Income Tax Act on the date the treaty comes into force.

1995 The equivalent of the Model's paragraph 4 does not refer to customary practices but allows determination of a permanent establishment's profits by apportionment of the enterprise's total profits or by estimates on any other reasonable basis insofar as, in exceptional cases, the determination of those profits is otherwise impossible or gives rise to unreasonable difficulties.

The Protocol of Signature limits the profits attributable to a building site or construction, assembly, or installation project to those resulting from the activities of the permanent establishment as such, and it excludes the value of deliveries of machinery to the permanent establishment.

It also excludes, from the profits of a permanent establishment in one state, any income derived from planning, project, construction or research activities or technical services connected with the permanent establishment but exercised in the other state.

The Protocol of Signature also provides that profits derived from the sale of goods or merchandise of the same or a similar kind as those sold, or from other business activities of the same or a similar kind as those effected through the permanent establishment may be attributed to the permanent establishment if the transactions were resorted to for tax avoidance and the permanent establishment was involved in any way.

Indonesia

Paragraph 4 (customary apportionment) is omitted. A non-standard paragraph, included in its place, permits profits to be calculated according to domestic law "in the absence of appropriate accounting or other data".

The Protocol of Signature (paragraph 2) records an understanding about three specific ways in which Article 7 is to be interpreted in practice:

(a) in the case of building etc sites, where machinery or equipment is delivered from the head office or another permanent establishment of the enterprise, or from a third person, the value of such deliveries is not to be attributed to the permanent establishment;

(b) income derived by a resident of one state from planning, project, construction or research activities, as well as income from technical services exercised in that state in connection with a permanent establishment which it has in the other state is not to be attributed to that permanent establishment;

(c) with regard to paragraph 1, profits derived from the sale of goods etc, or from other business activities of the same or similar kind as those effected through the permanent establishment, may be attributed to the permanent establishment, if it is proved that the transaction was entered into in order to avoid taxation in the host state, and that the permanent establishment was involved "in any way" in this transaction.

Ireland

Paragraph 1 is re-stated in similar terms to cover the case of a partner in an undertaking which has a permanent establishment in the other state.

Italy

The Protocol of Signature adds a rider that profits can only be attributed to a building site etc if they arise directly from the activity: in particular any profits from the delivery of materials during or after the work are to be ignored. Similarly profits of a permanent establishment are not to include those arising from contracts for the planning, delivery, installation or manufacture of equipment for industrial commercial or scientific institutions, or public building activities, beyond those directly attributable to the work in the other state.

The term "expenses" in paragraph 3 is to mean expenses effectively connected with the actual activities of the permanent establishment.

Japan

For the purposes of Article 7, the Offene Handelsgesellschaft, and the Kommanditgesellschaft, are to be treated as bodies corporate resident in Germany.

Korea

1976 Paragraph 4 of the Model (customary practices) is omitted, as is paragraph 6 (consistent annual method of attribution).

Latvia

Paragraph 4, customary apportionment, is qualified to make it clear that it is to apply only in exceptional cases, when determination in accordance with paragraph 2 is impossible or gives rise to unreasonable difficulties.

Lithuania

Luxembourg

There are counterparts of paragraphs 1 and 2 of the Model; paragraph 1 refers to the resident deriving profits as an entrepreneur or co-entrepreneur from an industrial or commercial enterprise. Paragraph 1 extends to income from letting, leasing or any other way of exploiting the enterprise.

Paragraph 3 is represented by a provision that the income of a permanent establishment is determined on the basis of the balance sheet, taking account of all expenditure attributable to the permanent establishment, including the general executive and administrative expenses of the enterprise. It excludes the artificial shifting of profits, and any deduction for the payment of interest and royalties between two permanent establishments of the same enterprise.

A sleeping partner is to be treated as within Article 7 if his participation carries with it a share in the property of the enterprise. Otherwise his income is to be assessed as a dividend.

Malaysia

1977 Paragraphs 4 (customary apportionment) and 6 (same method) are omitted.

2010 The equivalent of paragraph 4 (customary practices) provides that, in the absence of appropriate accounting data or other information permitting the determination of profits to be attributed to the permanent establishment of an enterprise, tax may be assessed in the state where the permanent establishment is situated in accordance with the laws of that state, by the making of an estimate on the basis of available information, in accordance with the principles of this article.

The Protocol of Signature makes it clear that the profits of a permanent establishment are not to be determined on the basis of the total amount received from sales of goods through the establishment but only on the amount attributable to the actual activity of the permanent establishment in the state in which it is situated. Similarly, in the case of contracts for the survey, supply, installation or construction of industrial, commercial or scientific equipment, or public works, the determination is to be based only on that part of the contract which is effectively carried out by the permanent establishment in the state in which it is situated.

Malta

a) profits from sales etc through a permanent establishment shall be determined on the basis of payments attributable to the actual activity of the permanent establishment and not on the basis of the total amount received by the enterprise, and

b) profits from contracts where there is a permanent establishment shall be determined on the basis of that part of the contract which is effectively carried out through the permanent establishment and not on the total amount of the contract. Profits from the supply of goods to the permanent establishment and profits related to the part of the contract carried out in the state where the head office is situated shall be taxable only in that state, and

c) payments for technical services, engineering contracts etc are deemed to be payments to which Articles 7 or 14 apply.

Mexico

1993 The article itself closely follows the Model, with a change at the start of paragraph 4, which refers to its being impossible or excessively difficult in certain particular cases to determine the profits of a permanent establishment, rather than to the Model's customary practice.

For a start, the "force of attraction" is to apply to take as profits of a permanent establishment those derived from the sale of goods or merchandise of the same or similar kind to those normally sold by the permanent establishment if the permanent establishment itself has been involved in any way in the transaction.

Only that part of the profits of a construction etc project which is derived from the activities of the permanent establishment is to be attributed to it; if in connection with these activities merchandise is supplied by the head office, another branch or an unrelated person, the profit on that supply is not to be attributed to the permanent establishment.

The drawing of blueprints, construction or research activities or technical services performed in the parent state are not to cause profits to be ascribed to the permanent establishment.

There is an additional paragraph in the article providing that income or gains attributable to a permanent establishment are to be taxed in the state in which it is situated, even if payment is deferred until after the permanent establishment has gone.

No deduction is to be allowed under paragraph 3 (other than for reimbursement of actual expenses) for payments by the permanent establishment to its head office or any other office of the enterprise for royalties, commissions for services or management, or interest (except in the case of a bank).

Under (a) it provides with reference to paragraph 1 of the article, that profits from the alienation of goods or merchandise in the state of the permanent establishment may be attributed to that permanent establishment, if it is proved that the permanent establishment has been involved in that operation, but only on the basis of the amount which is attributable to the permanent establishment based on a functional analysis taking into account the activity actually performed, the risk taken, and the assets used:

(b) provides in the case of contracts, in particular for the survey, supply, installation or construction of industrial, commercial or scientific equipment or premises, or of public works, where the enterprise has a permanent establishment in the other contracting state, the profits of such permanent establishment are not to be determined on the basis of the total amount of the contract, but only on the basis of the amount which is attributable to the permanent establishment based on a functional analysis taking into account the activity actually performed, the risk taken, and the assets used. Profits derived from the supply of goods to that permanent establishment or profits related to the part of the contract which is carried out in the state in which the head office of the enterprise is situated are to be taxable only in that state;

(c) provides that payments received for technical services, including studies or surveys of a scientific, geological or technical nature, or for engineering contracts including blue prints related thereto, or for consultancy or supervisory services, are to be deemed to be payments to which the provisions of Article 7 apply.

Netherlands

Paragraph 3 is represented by a provision that the income of a permanent establishment is determined on the basis of the balance sheet, taking account of all expenditure attributable to the permanent establishment, including the general executive and administrative expenses of the enterprise. The paragraph excludes the artificial shifting of profits, and any deduction for the payment of interest and royalties between two permanent establishments of the same enterprise.

New Zealand

The Protocol of Signature gives additional rules for the determination of the profit of a permanent enterprise in the case of the sale of goods or merchandise, and in the case of contracts for the survey, supply, installation or construction of certain business equipment or premises or of public works.

Poland

Paragraph 7 of the article states that profits within the meaning of the article are to include all income which the enterprise derives from either contracting state, or from a third state. However income within Article 10 (dividends) is not to be affected by this rule.

Romania

1973 The Protocol of Signature (3) provides that in determining the taxable profits of a permanent establishment there can be deducted as business expenses in accordance with the laws of the state where the permanent establishment is situated any amount paid by a building enterprise to a sub-contractor for services rendered.

(a) Where an enterprise of a state sells goods etc or carries on business through a permanent establishment, the profits of that permanent establishment are not to be determined on the basis of the total amount received for them. Instead they are to be determined only on the basis of the amount attributable to the activity of the permanent establishment for such sales or business.

(b) In the case of contracts (in particular for the survey, supply, installation etc of industrial, commercial or scientific equipment etc or of public works, where the enterprise has a permanent establishment in the other state, the profits of the permanent establishment shall not be decided on the basis of the total amount of the contract. Instead they shall be decided only on the basis of that part of the contract which is effectively carried out by the permanent establishment in the state in which it is situated. Profits from the supply of goods to the permanent establishment or profits related to that part of the contract carried out in the state in which the permanent establishment is situated shall be taxable only in that state.

(c) Payments received as consideration for technical services including studies or surveys etc or for consultancy or supervisory services are to be deemed to be payments to which Articles 7 and 14 apply. However if those payments are made for a real transfer of know-how, Article 12 is to apply.

Russia

1981 The Protocol of Signature defines business activity in the counterpart of Article 7 and the following articles as including both entrepreneurial and independent activities. Thus there is no equivalent of Article 14 of the Model.

1996 Paragraph 4 (customary apportionment) of the Model is followed in principle, but the term "customary" is not used. Instead, apportionment is permitted "in specific cases", where a paragraph 2 attribution is "impossible or unreasonably difficult".

The Protocol of Signature (paragraph 2), supplies a safeguard against any attempt to attribute to a permanent establishment the profits of certain ancillary operations which may be undertaken as part of so-called "turn-key" contracts in respect of building sites or construction or installation projects. The excluded operations are the supply of goods or merchandise and planning, design, engineering or research, and the provision of technical services.

The Protocol of Signature (paragraph 3, in respect of Articles 7 and 9), provides for the deductibility "without limitation" of interest and advertising costs, provided they do not exceed the arm's length measure, both for companies and permanent establishments which are owned by residents of the other state.

In practice the Russian tax authorities had tended to disregard this provision and to refuse a deduction for interest, as provided in Russian domestic legislation. However, a mutual agreement between the competent authorities of the two states, which took effect from 1 January 2002, confirmed that no limitation of interest would apply from that date. However the Russian transfer pricing regulations will disallow any deviation of more than 20% from the average interest on comparable loans. Finally, the agreement confirmed that the new Russian thin capitalisation rules are in accordance with the treaty and the protocol.

Singapore

1972 The Model's paragraphs 4 (customary practices) and 6 (consistent annual methods) are omitted.

2004 In paragraph 3 the expenses are those which would be deductible if the permanent establishment were an independent enterprise.

An additional paragraph numbered 7 provides that the article is also to apply to income of a resident of a contracting state who carries on business in the other state as a partner of a partnership. It is further to apply to remuneration received by a partner from the partnership for activities in the service of the partnership and for the granting of loans or the provision of assets to the partnership, where such remuneration is attributable under the tax law of the contracting state in which the permanent establishment is situated to the income derived by a partner from that permanent establishment.

(a) in the case of contracts, in particular for the survey, supply, installation or construction of industrial, commercial or scientific equipment or premises, or of public works, where the enterprise has a permanent establishment in the other contracting state, the profits of that permanent establishment are not to be determined on the basis of the total amount of the contract, but only on the basis of that part of the contract which is effectively carried out by the permanent establishment in the contracting state in which it is situated. Profits derived from the supply of goods to that permanent establishment or profits related to the part of the contract which is carried out in the contracting state in which the head office of the enterprise is situated are to be taxable only in that state.

(b) payments received as a consideration for technical services, including studies or surveys of a scientific, geological or technical nature, or for engineering contracts including blue prints related thereto, or for consultancy or supervisory services are to be deemed to be payments to which the provisions of Article 7 or Article 14 of the treaty apply.

Slovenia

1987 Following the article there is a new Article 8 headed "Taxation of profit from investments in a Yugoslavian (Slovenian) organisation of associated labour", which provides that profit from such an investment derived by a German resident can be taxed in Yugoslavia (Slovenia), but the rate is not to exceed 15%.

2006 Bilateral Article 4 (definition of "resident of" a contracting state) provides that, in the case of a partnership, bilateral Articles 6 to 22 of the treaty apply only to the income or capital that is subject to tax in the contracting state of which it is deemed to be a resident.

The Protocol of Signature (integrated into the treaty by bilateral Article 30) specifies in addition the following.

(a) Where an enterprise of a contracting state sells goods or merchandise or carries on business in the other contracting state through a permanent establishment situated therein, the profits of that permanent establishment shall not be determined on the basis of the total amount received therefrom by the enterprise but only on the basis of the amount which is attributable to the actual activity of the permanent establishment for such sales or business.

(b) In the case of contracts, particularly for the survey, supply, installation or construction of industrial, commercial or scientific equipment or premises, or of public works, where the enterprise has a permanent establishment in the other contracting state, the profits of that permanent establishment are not to be determined on the basis of the total amount of the contract but only on the basis of that part of the contract which is effectively carried out by the permanent establishment in the contracting state in which it is situated. Profits from the sale of goods to that permanent establishment or profits related to the part of the contract which is carried out in the contracting state in which the head office of the enterprise is situated are to be taxable only in that state.

(c) Payments in consideration for technical services, including studies or surveys of a scientific, geological or technical nature, or for engineering contracts including blue-prints related thereto, or for consultancy or supervisory services are deemed to be payments to which the provisions of bilateral Article 7 (attribution of profits to permanent establishments) or Article 14 (Independent personal services) apply.

Bilateral Article 4 (definition of "resident of" a contracting state) provides that, in the case of a partnership, bilateral Articles 6 to 22 of the treaty apply only to the income or capital that is subject to tax in the contracting state of which it is deemed to be a resident.

South Africa

1973 In paragraph 1 and throughout the article the Model�s reference to �profits� is glossed as �industrial or commercial profits�.

The counterpart of paragraph 3 contains an additional sentence: �If the expenses are so incurred they shall be allowed to the extent that they are deductible under the law of the State in which the permanent establishment is situated�.

a) where an enterprise sells goods etc or carries on business through a permanent establishment, the profits to be attributed to that permanent establishment are those that arise from the actual activity of the permanent establishment; and

b) in the case of contracts, the profits of a permanent establishment are to be limited to that part of the contract which is effectively carried out by the permanent establishment.

Article 28 of the present treaty provides that the Protocol is an integral part of the treaty.

Sweden

1959 The counterpart of paragraph 1 is to apply additionally to income derived from the lease or use in any other form of the enterprise, and from its total or partial alienation, or that of a part, or of assets, of the enterprise.

Paragraph 3 is represented by a provision that the income of a permanent establishment is determined on the basis of the balance sheet, taking account of all expenditure attributable to the permanent establishment, including the general executive and administrative expenses of the enterprise. The paragraph excludes the artificial shifting of profits, in particular any deduction for the payment of interest and royalties between two permanent establishments of the same enterprise.

Paragraph 4 is represented by a sentence providing that in special cases income may be determined by apportioning the total profits of the enterprise.

Switzerland

Turkey

The Protocol of Signature attributes to a permanent establishment in the other state sales which the enterprise effects in the other state through the permanent establishment. The Protocol goes on to set out rules for attributing profit to a permanent establishment in particular cases, and for allocating costs.

Ukraine

1995 A Protocol of Signature (paragraph 1) explains the way in which Article 7 is to be applied to three specified sets of circumstances:

(a) Remuneration of permanent establishment - to be calculated by reference to "actual activity";

(b) Rules for contracts "for the survey, supply, installation or construction of industrial, commercial or scientific equipment or premises, or of public works"

(c) Payments for technical services "including studies or surveys of a scientific, geological or technical nature, or for engineering contracts including blueprints related thereto, or for consultancy or supervisory services".

United Kingdom

Paragraphs 3 (expenses), 4 (customary practices)and 6 (consistent annual methods) are omitted.

There is an additional paragraph dealing with the situation of partners entitled to a share of an undertaking.

A separate paragraph provides that the article does not prevent either country taxing dividends etc from the other even if the dividends are not attributable to a permanent establishment.

United States

The Protocol of Signature to the 2006 Protocol deletes the 28 paragraphs of the Protocol of Signature of the treaty, and substitutes as its paragraph 5 the following, referring to Articles 7 (paragraphs 1 and 2) and Article 13 (paragraph 3):

�For the implementation of paragraphs 1 and 2 of Article 7 and paragraph 3 of Article 13 any income, gain, or expense attributable to a permanent establishment is taxable or deductible in the Contracting State where such permanent establishment is situated even if the payments are deferred until such permanent establishment ceases to exist. Nothing in the preceding sentence shall prevent the application to such deferred payments of rules regarding the accrual of income and expenses according to the domestic law of a Contracting State. �

The Protocol of Signature to the 2006 Protocol similarly substitutes as its paragraph 6 the following, referring to Articles 7 and Article 13:

�Gains from the alienation of movable property that at any time formed part of the business property of a permanent establishment that a resident of one Contracting State has or had in the other Contracting State may be taxed by that other State only to the extent of the gain that accrued during that time. Notwithstanding any provision of Article 7 or Article 13, such tax may be imposed on such gains at the time when realized and recognized under the laws of that other State, if it is within ten years of the date on which the property ceases to be part of the business property of the permanent establishment (or such shorter period provided by the laws of either Contracting State).�

Paragraph 3 extends the deduction to research and development expense, interest and other similar expenses, and to a reasonable amount of executive and general administrative expense.

The 2006 Protocol deletes paragraph 3, and substitutes paragraph 3 of the Model.

Business profits to be attributed to a permanent establishment are to include only the profits derived from the assets or activities of the permanent establishment. Business profits include income from the rental of tangible personal property, and the rental or licensing of cinematographic films or works on film, tape etc for radio and television.

The 2006 protocol adds, following the deletion of Article 14, the words �and income from the performance of professional services and of other activities of an independent character�.

The Protocol of Signature to the 2006 Protocol deletes the 28 paragraphs of the Protocol of Signature of the treaty, and substitutes as its paragraph 4 the following, referring to Article 7:

�It is understood that the business profits to be attributed to a permanent establishment shall include only the profits derived from the assets used, risks assumed, and activities performed by the permanent establishment. The principles of the OECD Transfer Pricing Guidelines will apply for purposes of determining the profits attributable to a permanent establishment, taking into account the different economic and legal circumstances of a single entity. Accordingly, any of the methods described therein as acceptable methods for determining an arm�s-length result may be used to determine the income of a permanent establishment so long as those methods are applied in accordance with the Guidelines. In particular, in determining the amount of attributable profits, the permanent establishment shall be treated as having the same amount of capital that it would need to support its activities if it were a distinct and separate enterprise engaged in the same or similar activities. With respect to financial institutions other than insurance companies, a Contracting State may determine the amount of capital to be attributed to a permanent establishment by allocating the institution's total equity between its various offices on the basis of the proportion of the financial institution's risk-weighted assets attributable to each of them. A financial institution may determine the amount of the capital attributed to its permanent establishment using its risk weighted assets only if it risk weights its assets in the ordinary course of its business. �