Nothing is certain in this world, except death and taxes –
and even taxes are subject to change. The ever-expanding definition
of a permanent establishment ("P.E.") and ever
diminishing exceptions to a P.E. under the O.E.C.D.'s B.E.P.S.
Project has made one thing clear – the restrictions local
jurisdictions put on activities by foreign taxpayers to trigger
taxation are tightening. The dwindling preparatory and auxiliary
activities exception is a prime example.
Under U.S. domestic law, a foreign enterprise is subject to
taxation in the U.S. if its activities constitute a U.S. trade or
business ("U.S.T.B.") and the income is effectively
connected with the U.S.T.B.1 However, if the foreign
enterprise is resident in a country that has an income tax treaty
with the U.S., an exception may apply. If the activities of the
foreign enterprise, as defined in the applicable income tax treaty,
do not rise to a certain level, the foreign enterprise will not be
taxable in the U.S.
