ARTICLE 7

Business Profits

(1) The profits of an enterprise of a Contracting State shall be taxable only in that State unless the enterprise carries on business in the other Contracting State through a permanent establishment situated therein. If the enterprise carries on business as aforesaid, the profits of the enterprise may be taxed in the other State but only so much of them as are attributable to that permanent establishment.

(2) Subject to the provisions of paragraph (3) of this Article, where an enterprise of a Contracting State carries on business in the other Contracting State through a permanent establishment situated therein then, there shall, in each Contracting State be attributed to that permanent establishment, the profits which it might be expected to make if it were a distinct enterprise engaged in the same or substantially similar activities under the same or substantially similar conditions and dealing wholly or independently with the enterprise of which it is a permanent establishment.

(3) In determining the profits of a permanent establishment, there shall be allowed as deductions, any expenses which are incurred for the purposes of the permanent establishment, including executive and general administrative expenses so incurred, whether in the State in which the permanent establishment is situated or elsewhere. No deduction shall be permitted, however, for sums which would otherwise be paid (for purposes other than the reimbursement of expenses incurred) by the permanent establishment to the headquarters of the enterprise or to any one of its establishments as royalties, fees or other similar payments, for the use of patents or other rights or as a commission, for specific services rendered or for a management activity or, except in the case of a banking enterprise, as interest on sums loaned to the permanent establishment. In addition, in calculating the profits of a permanent establishment, any sums (other than for the purpose of reimbursing expenses incurred) which are charged by the permanent establishment to the headquarters of the enterprise or any of its establishments as royalties, fees or other similar payments, for the use of patents or other rights or as commission for specific services rendered or for a management activity or, except in the case of a banking enterprise, as interest on sums loaned to the headquarters of the enterprise or any of its establishments, shall not be included.

(4) Insofar as it has been customary in a Contracting State to determine the profits to be attributed to a permanent establishment on the basis of an apportionment of the total profits of the enterprise to its various parts, the provision contained in paragraph (2) of this Article shall not preclude that Contracting State from determining the profits to be taxed by such customary apportionment. However, the method of apportionment adopted shall be such that the result obtained shall be in accordance with the principles contained in this Article.

(5) No profits shall be attributed to a permanent establishment merely because the permanent establishment purchases merchandise on behalf of the enterprise.

(6) For the purposes of the preceding paragraphs of this Article, the profits to be attributed to the permanent establishment shall be determined every year by the same method, unless there is a good and sufficient reason to proceed otherwise.

(7) The provisions of this Article shall also apply to income arising from the participation in a partnership. They shall also extend to the remuneration received by a partner from a partnership for any activity performed in service of the society, for the granting of loans or the transfer of economic assets when, according to the tax law of the Contracting State in which the permanent establishment is situated, this remuneration is included in the income that the partner derives from the said permanent establishment.

(8) Where profits include items of income that are dealt with separately in other Articles of this Convention, then the provisions of those Articles shall not be affected by the provisions of this Article.