Tax Treaties: The Secret Agent's Secrets

British Tax Review (50th Anniversary Edition), No. 3, p. 345, 2006

Sydney Law School Research Paper No. 06/05

39 Pages Posted: 27 Jul 2006 Last revised: 10 Apr 2011

See all articles by Richard J. Vann

Richard J. Vann

The University of Sydney Law School


Recently two apparent paradoxes have been revealed about an agency permanent establishment (PE) under tax treaties, first that it is possible to avoid an agency PE by exploiting a difference between civil law and common law on agency (often referred to as commissionnaire structures) and secondly that if the agent is rewarded with a market-value fee there will be no profits to attribute to an agency PE. This article demonstrates that these problems have been present since the origin of tax treaties, and that they stem from a form-over-substance approach to PE tests which relegates the independence test in defining PEs to a secondary role, from the use of a different indeterminate independence test in transfer-pricing rules and from the definition of the firm in terms of common ownership. Underlying the problems have been inconsistent views on how value is generated within a firm. The solution is to settle on a workable theory of value, to apply substance over form, and to realise the significance of independence in defining the boundary of the firm. Under current treaty law, the second asserted paradox is not correct if treaties are interpreted in a sensible manner.

Keywords: Agents, Australia, Double taxation, International taxation, Permanent establishment, Transfer pricing, Treaties

JEL Classification: F23, H87, K34, L22

Suggested Citation

Vann, Richard J., Tax Treaties: The Secret Agent's Secrets. British Tax Review (50th Anniversary Edition), No. 3, p. 345, 2006, Sydney Law School Research Paper No. 06/05, Available at SSRN:

Richard J. Vann (Contact Author)

The University of Sydney Law School ( email )

Faculty of Law Building, F10
The University of Sydney
Camperdown, NSW 2006
+61 2 9351 0206 (Phone)
+ 61 2 9351 0200 (Fax)


Do you have a job opening that you would like to promote on SSRN?

Paper statistics

Abstract Views
PlumX Metrics