1. Introduction

Most contemporary tax treaties generally stipulate that for existence of a foreign enterprise’s dependent agency permanent establishment in the Source State, inter alia, an agent in that State must act on behalf of the enterprise and, also, the agent must possess authority to conclude contracts on behalf of the enterprise.

Though the above-mentioned 'authority to conclude contracts' prerequisite may appear straight forward, courts in several jurisdictions have been required to adjudicate on various intricate issues concerning the same.

For instance, could mere presence of a foreign enterprise’s agent in the Source State give rise to a dependent agency permanent establishment? Could a foreign enterprise’s agent entrusted with responsibilities for acting as a mere communication channel or for providing representation services be regarded as possessing authority to conclude contracts on behalf of the enterprise? Who has the burden to prove that a foreign enterprise’s agent has the authority to conclude contracts – the enterprise or the tax authorities of the Source State? What if an agent has only ‘limited authority’ to conclude contracts in the Source State on behalf of a foreign enterprise? Could an agent’s authority to conclude contracts be inferred (implied) from the conduct of the agent and the principal?

This article deals with the above-mentioned issues and takes into account important judicial precedents from various jurisdictions including Canada, Denmark, France, India, Italy, The Netherlands, and Switzerland.