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These notes are issued for the information of taxpayers and their tax - page 16 / 68

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auxiliary character), are used to ascertain whether the activities of an enterprise of One Side constitute a permanent establishment in the Other Side. Paragraph 1 of Article 5 generally explains that a permanent establishment is a fixed place of business through which the business activities of the enterprise are carried on. There is no qualification on the scale or the form of the place of business. A permanent establishment will normally have the following features:

  • (1)

    It must be a place of business. This may include a house, a site, equipment or facilities (such as machinery and equipment), a warehouse, and a stall used for carrying on the business of the enterprise, whether owned or rented by the enterprise.

  • (2)

    It must be a fixed place of business with a certain degree of permanence. The temporary interruption or suspension of business activities conducted at a fixed place of business will not affect the existence of a permanent establishment.

(3)

The enterprise must carry on the whole or a part of its business through this fixed place of business.

37.

Paragraph 2 of Article 5 provides that the term “permanent

establishment” includes especially “a place of management; a branch; an office;

a factory; a workshop; a mine, an oil or gas well, a quarry or any other place of

extraction of natural resources”. especially” that the paragraph does

It is clear from the words not preclude the determination of

“includes any other

place

of

business

as

a

permanent

establishment

in

accordance

with

the

general

definition of the term. It mentioned in the list refers supervisory activities for an

should be noted that the “place of management” to a place of work or an office where some of the enterprise may be exercised. This is in contrast to

the criteria in Article 4, i.e. the “normally managed or Kong” criterion used for determining whether a person is a

controlled in Hong Hong Kong resident;

the “head office” criterion used for determining whether a person is a resident of the Mainland prior to the effective date of the Second Protocol; and the “place of effective management” criterion used for resolving the issue of dual residence of both Sides. Paragraph 7 of Article 5 is also pertinent, providing that the fact that a company which is a resident of One Side controls or is

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