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These notes are issued for the information of taxpayers and their tax - page 22 / 68





22 / 68


The purpose of paragraph 4 of Article 5 is to clarify what are

accepted as genuine “representative offices” and not regarded as permanent establishments subject to tax. However, attention should be drawn to the


  • (1)

    the activities should be for the enterprise itself;

  • (2)

    the activities should not directly generate profits; and

  • (3)

    the function of the place of business should only be of a

supportive nature. If the place of business conducts certain supervisory management functions for the enterprise or manages certain business operations, its activities would not be regarded as being of the required character. In this event, the place of business would be regarded as a place of management and would therefore constitute a permanent establishment.

Where the activities carried out in the Other Side by a representative office go beyond the exceptions set out in paragraph 4 of Article 5, the representative office would be regarded as a permanent establishment. Profits attributed to that permanent establishment would be taxed in the Other Side in accordance with the provisions of Article 7 (Business Profits) (see paragraphs 55 to 66 below).

Business agent


Paragraph 5 of Article 5 of the Comprehensive Arrangement

expressly points out that a dependent agent (i.e. an agent acting under the control and leadership of an enterprise of One Side), who regularly acts on behalf of that enterprise in the Other Side and has, and habitually exercises, an authority to conclude contracts in the name of that enterprise, that enterprise will be deemed to have a permanent establishment in the Other Side. In Hong Kong, if a dependent agent is not a final signatory to a contract but participates in detailed negotiations and formulates the contract provisions on behalf of the relevant Mainland enterprise, that Mainland enterprise will still be deemed to have a permanent establishment in Hong Kong. Paragraph 6 of Article 5 states that an enterprise of One Side will not be deemed to have a permanent


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