The Russian Ministry of Finance recently published Letter No. 03-08-05/36799 of 14 June 2017 concerning the existence of a permanent establishment of a UK company's representative in Russia under the 1994 income and capital tax treaty between the two countries. In accordance with paragraph 1 of Article 5 (Permanent Establishment), the term "permanent establishment" means a fixed place of business through which an enterprise of a Contracting State wholly or partly carries on business in the other Contracting State. According to the letter, this includes the following conditions:
The letter provides that the term "place of business" means any premises, facilities, equipment or installations used for the business enterprise, regardless of whether they are used exclusively for this purpose or not. Place of business may also exist without separate premises, and only requires that sufficient space be available. Also, the commercial activity does not have to be of a productive nature and does not have to be constant, that is carried out without interruption in operations, but the operations must be regular.
Lastly, the letter notes that If the foreign company carries out activities in the Russian Federation of a preparatory and (or) auxiliary character for the benefit of third parties resulting in the formation of a permanent establishment, and there is no compensation provided for such activity, the tax base is determined at the rate of 20% of the expenses of the permanent establishment associated with such activities as per paragraph 3 article 307 of the Russian Tax Code.
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