Can A Private Individual Be Considered Permanent Representation?
A Cyprus company is a share holder in a Russian company but does not itself engage in business activity on the territory of the RF. The only representative of the Cyprus company in Russia is a private individual holding broad powers of attorney, including the ability to sign contracts. The representative had not actually negotiated or signed any contracts, but had acted on the company's behalf in regards to dividends received from shares held in the Russian company.
The company asked the Ministry of Finance if this private individual would be considered a dependent agent, creating a tax-liable permanent representation for the Cyprus company in Russia?
The Ministry of Finance replied on May 7, 2008, with Letter # 03-08-05 stating that all requirements for such an agent were listed in Article 306 of the Tax Code, and if these requirements were not met, a private individual is not considered permanent representation, no matter the extent of the relationship he/she holds with the foreign company.
The Ministry also suggested referring to the "Commentary to the OECD Model Convention" for more information. The Ministry says that while the convention states that only entities holding the right to enter into contracts may be considered permanent representation, “the right to enter into contracts” does not constituted a permanent representation. We recommend reading more about these and other interesting details of MinFin’s interpretation of the Commentary in the text of the Letter (in Russian).
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