Agency PE Hans Pijl - Deloitte - Deloitte

This presentation discusses the article H. Pijl. Agency Permanent 

Establishments: in the name of and the Relationship between article 5(5) and 

(6), Bulletin for International Taxation Jan/Febr 2013. The article is, with kind 

permission of IBFD, available as a pdf file on the website http://bit.ly/HansPijl. 

The article criticizes the theories of John F. Avery Jones/David Ward (“main 

rule/exception model”) and Sidney Roberts (“independent rules model”) on 

agency PE. The better view is the “integration model”. 

Agency PE 

Hans Pijl 

The article also demonstrates that article 5(5) expresses legal bindingness, 

not a bindingness of an undefined economic or factual nature. 

The article shares the criticism on the OECD for its tactical evasion of a clear 

position. 

Brainstormgroep IBR 

Amsterdam, Loyens & Loeff 

18 March 2013

Issues around agency PE 

• Meaning of “to conclude contracts in the name of the enterprise” (5-5 OECD MC) 

• Literally “in the name of” 

• Substantially as “binding” (1994, now par. 32.1: “... the paragraph applies equally to an agent who 

concludes contracts which are binding on the enterprise even if those contracts are not actually in 

the name of the enterprise.” 

• The interpretation of “binding” in par. 32.1 

• Legally binding 

• Economically/factually binding 

• Zimmer-Dell-DSM 

• The relationship of 5-5 and 5-6 

• Integrate 5-6 and 5-5 

• 5-6 is an exception to 5-5 (Avery Jones 1993) 

• Read 5-5 and 5-6 as seperate PE-constituting rules (Roberts 1993) 

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© 2013 Pijl/Deloitte The Netherlands

“In the name of” = “on 

behalf of” 


“On behalf of-pour le compte de” versus “In the name of-au nom de” 

• OECD has two working languages: English/French 

• Fiscal Committee worked in Working Parties, which decide on the working language 

• Documents are drafted in that language and translated in other language (“Or. angl.”) 

• Working Party 1 (1956) on PE: 

• Germany and UK 

• English 

• 1st PE Report (1956): English original on behalf of translated as pour le compte de 

• 2nd PE Report (1957): English original on behalf of translated as au nom de 

• All intermediate documents with the same “mismatch” (?) 

• Report to the Council (1958) 

• Shift to French as the original language: au nom de. English remained on behalf of. 

• Drafting Group adviced to make French pour le compte de as well 

• Instead, English became “in the name of”, accepted without any discussion 

3 


Mismatch?: Umberto Eco on the translation of Adso’s dream in “In the name 

of the Rose” 

• Allusion to/quote from the 1st document of Italian literature, the Carta Capuana 

• How to make this allusion work for those not familar with Italian literature? 

• Kroeber in his German translation replaced it by a quotation from the German Merseburger 

Zaubersprüche. 

• “functional equivalence” versus “referentially false” 

• Adapt to the culture of readers 

(Umberto Eco. Mouse or Rat?) 

4 


Legal bindingness: cultural background and context 

• League of Nations before WW-II: 

• Identity of “in the name” and “on behalf of” 

• “Binding” understood as legally binding 

• Commission agent no PE as he acts in his own name 

• Broker no PE as he merely brings Parties together 

• Mexico and London MC: binding as a legal concept 

• UN Model: “binding” a legal concept 

• The 1994 changes in Commentary were intended to make “in the name” work in the UK (legally 

binding disclosed principal) 

• Binding used elsewhere in the Commentary as a legal concept too (art 25-5) 

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Conclusion 

• No support that “in the name of” has a formal meaning or is a conscious 

import of civil law 

• “In the name of” to be understood as another expression for “binding” 

• The explanation given to “binding” in par. 32.1 (1994) matches to “in the name 

of” as legally binding 

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OECD PE Discusion Draft avoids the answer with for example 

“... the phrase ‘authority to conclude contracts in the name of the enterprise’ does 

not confine the application of the paragraph to an agent who enters into contracts 

literally in the name of the enterprise; the paragraph applies equally to an agent 

who concludes contracts which are binding on the enterprise even if those 

contracts are not actually in the name ... For example, in some countries an 

enterprise would be bound, in certain cases, by a contract concluded with a 

third party by a person acting on behalf of the enterprise even if the person 

did not formally disclose that it was acting for the enterprise and the name 

of the enterprise was not referred to in the contract.” 

(Proposed addition to par. 32.1 Commentary to Article 5) 

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Relationship 5-5 and 

5-6 


Integration model embedded in the hyphenized sentence 

5. ... where a person -other than an agent of an independent status to whom 

paragraph 6 applies- is acting on behalf of an enterprise and ... habitually 

exercises ... an authority to conclude contracts in the name of the enterprise, 

that enterprise shall be deemed to have a permanent establishment... 

6. An enterprise shall not be deemed to have a permanent establishment ... 

merely because it carries on business in that State through ...an agent of an 

independent status, provided that such persons are acting in the ordinary 

course of their business.” 

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Colors indicate order 

First test 

Second 

test 

Final 

Conclusion 

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Integration model 

PE 

Independent 

and ordinary course: 

No PE 

In the name/binding 


Other agents: 


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Commentary (1963) 

• “15 … Where an enterprise has business dealings with an independent agent, 

this cannot be held to mean that the enterprise itself carries on business in the 

other State. In such a case, there are two separate enterprises. 16. Having 

thus excluded the independent agents from the term ‘permanent 

establishments’ it would likewise not be in the interest of international 

economic relations to treat all dependent agents as being permanent 

establishments. Treatment as a permanent establishment should be limited to 

dependent agents , which, in view of the scope of their agent’s authority ... take 

part to a particular extent in the business activities in the other State…” 

(Paragraph 15 and 16 of the Commentary (1963)) 

• “Under paragraph 4 of the Article, only one category of dependent agents ... is 

deemed to be permanent establishments. All independent agents and the 

remaining dependent ones are [not] deemed to be permanent establishments” 

(Paragraph 19 of the Commentary 1963) 

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Commentary (1977) 

• “Persons whose activities may create a permanent establishment for the 

enterprise are so-called dependent agents, i.e. persons ... who are not 

independent agents falling under paragraph 6 ... It would not have been in the 

interest of international economic relations to provide that the maintenance of 

any dependent person would lead to a permanent establishment of the 

enterprise. Such treatment is to be limited to persons who in view of the scope 

of their authority ... involve the enterprise to a particular extent in business 

activities in the State concerned”.” 

(Paragraph 31 of the Commentary 1977, par. 32 Commentary (2012)) 

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Decision tree under the integration model 

1. Is the agent independent 

and acting in the ordinary 

course of his business? 

no 

yes 

2. Does he conclude 

contracts legally binding 

on the principal? 

no 

yes 




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Main rule/exception model (Avery Jones/ward) 

Other agents: 


In the 

name/binding: 


Independent and ordinary course: 


15 


Criticism on Avery Jones/Ward 

• An unacceptable axiomatic starting point: 5-5 has a civil law origin and 5-5 originates in French 

• Factually besides the reality: The League of Nations díd use “in the name of”. It was not the OECD 

that started using that term 

• “In the name of” is interpreted literally only, without even considering 31-4 VC or other factors of 31-1 

• An unacceptable axiomatic starting point: 5-6 is 5-5’s exception 

16 


Independent rules model (Roberts) 


In the name/ 

binding: 


Independent 

and ordinary course 


Other agents: 


17 


Robert’s main reasoning and criticism 

Roberts on “... A broker, general commission agent or any other agent of an 

independent status ...” 

• Brokers and commission agents do not conclude contracts in their principals name (which is 

incorrect) 

• Therefore also the “other agents of an independent status” do not conclude contracts in their 

principal’s name – ejusdem generis principle 

• Independent means “not concluding contracts in the name of a principal” 

• Therefore article 5-6 cannot be an exception to 5-5 

• Therefore article 5-6 “must” stand alone, “obviously” as a PE constituting rule 

• Criticism: 

• Brokers and commissionaires do under certain legal systems conclude contracts in the name of their 

principal 

• Ejusdem generis cannot be applied with any characteristic: “a cat, a dog or any other hairy being” 

• Roberts view does not match with the Commentary 

• “Indepedent”’s normal meaning: able to perform without the will of someone else. 

• No fundament for the alleged “special meaning” of “not concluding contracts in the principal’s name” 

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Other criticism on Roberts 

• The axiomatically assumed civil law background of 5-5 

• 5-6: a negative rule with a positive implication: open-ended PE phrases were, 

however, consistently avoided by the OECD Draft’s drafters 

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OECD does not clarify the matter 

• Par. 119 Discussion Draft: the Commentary –allegedly- shows conflicting 

statements 

• No position taken 

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Agency PE Hans Pijl - Deloitte - Deloitte

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