Requirements Needed for the Assignment of PE Status to Subsidiaries

The multinational Enterprises resort to establishing subsidiaries in states other than their residence in most cases in order to avoid PE status. Due to the assumption of independent legal entity, subsidiaries are taxed as resident taxpayers in the place of incorporation or effective management in most states. But the high level of dependence on foreign companies has caused jurisprudence in some countries, treat subsidiaries as PE of non-resident companies under article 5 of OECD Model Treaty. Considering subsidiary as PE requires fulfillment of some conditions and this article has tried to extract applicable criteria in this respect through looking at model treaty which has been the role model for drafting Iran tax treaties. Thus it’s needed to pay attention to the substantive contractual relations between parent company and subsidiary, existing circumstances on degree of dependence among them and scope of accepted entrepreneurial risk of commercial activities in context of agency contract.