1     Introduction

The ‘permanent establishment’ article in the OECD and the UN Model Conventions as well as in the contemporary tax treaties clarify that mere existence of a foreign enterprise’s subsidiary in a source state should not give rise to the foreign enterprise’s permanent establishment in the source state (i.e. in the jurisdiction in which the subsidiary is situated). While that principle may seem fairly straight forward, it is evident from the discussion in this article that it involves interesting and intricate aspects.

This article takes into account some of the important court decisions – from Belgium, Greece, India and the United States – dealing with issues arising from tax treaty provisions similar to Art. 5(7) of the OECD Model Convention.