You send a salesperson to Europe. In your mind you have a commercial, a travel budget and a market to open. In the mind of the tax administration of the country they work in, you may have opened a business there. The question is decided on what the person does and where they do it, not on what you intended, and not on whether you registered anything.
What a permanent establishment is, in the forms it actually takes
The notion comes from the tax treaty between the countries concerned, and from the domestic law behind it. The wording differs; the logic is stable. A company becomes taxable in a country where it has something durable enough to be treated as a business carried on there. That durability is recognised either in a place or in a person. The place is a fixed location through which the business is carried on. The person is someone who habitually concludes contracts in your name, or who plays the principal role leading to their conclusion while your approval is a formality.
- An office, even a modest one. Rented space, a permanent desk in a partner's premises, a room in a serviced building. What matters is that it is at your disposal and used for your business with some continuity.
- A warehouse used for more than storage. Keeping goods pending delivery is often expressly excluded. Assembling, repacking, configuring, handling returns or selling out of the stock is a different activity, and frequently enough on its own.
- A home used as a base of operations. A salesperson working from their own apartment, with your stock in it and your customers coming to it, is a far harder file than a salesperson who works out of hotels.
- A site you control at a customer's or a subcontractor's. A workshop area, a maintenance base, an installation site that lasts. Duration is a criterion, and the length that triggers it is written in the treaty, so it has to be read for the countries concerned.
What aggravates the risk
- Authority over price. The heaviest factor there is. If the person can discount, agree terms or settle a contract and the signature elsewhere is a rubber stamp, the substance is a local conclusion of contracts.
- Outward signs of establishment. A business card and an email signature bearing your company name with a local address, a local telephone number, a sign on a door, your name on a lease or a utility account.
- Local stock sold locally. Goods held in the country and delivered to customers from there, especially when the person on site decides who is served and in what order.
- Continuity. The same person, in the same country, season after season, with the same customers. Occasional visits are a different fact pattern from a settled presence that happens to be paid from abroad.
- A paper trail that contradicts the paperwork. Emails negotiating terms, quotations issued locally, meeting notes recording commitments. The file is built from what was written at the time, and it is read later by someone who was not there.
What reduces it
- A strictly preparatory role. Market information, introductions, support, demonstrations, relaying offers that are made and accepted abroad. The exclusion exists in the treaties and it is narrow, so the job has to really be that one.
- A conclusion that genuinely happens abroad. Not a signature block in another country, but a real decision: the offer issued from head office, the terms set there, an approval that is substantive and sometimes refused.
- An independent agent acting for several principals. An agent who runs their own business, bears their own commercial risk and works for others besides you falls normally outside the dependent-agent rule. An agent who works only for you, on your instructions, usually does not, whatever the contract is called.
- A distributor who buys and resells on their own account. They conclude their own contracts with their own customers, not yours. It is one of the reasons the distributor route gets chosen, and it survives only if you do not then behave as the seller.
- Written scope that matches practice. A job description, a delegation of authority and an agency agreement that say what is actually done. The document helps when reality confirms it, and hurts when reality contradicts it.
Everything on both lists is a fact, and facts are established from what exists in writing. This is why the question cannot be settled by a clause. An employment contract stating that the person has no authority to commit the company is worth exactly as much as the emails, the quotations and the meeting notes agree with it. Build the arrangement you can defend, then make the daily practice look like it, because an inspector reconstructs the arrangement from the practice and not the other way round.
What it costs when the answer comes out of an audit
If an establishment is found, a share of your profit is attributed to it and taxed in that country, for the periods still open to review. The attribution is itself an argument — which functions were performed there, which assets and which risks belong to it — and arguing it requires accounting that was never kept, because nobody thought there was an establishment to account for. Around that sit the registration and filing obligations that were missed, late-filing penalties and interest, and a question about indirect taxation on the sales concerned.
There is usually a social dimension too. A person working durably in a country is normally affiliated to its social system and taxed there on their salary, whoever pays them and from wherever, so an arrangement that ignored this produces an employer's liability alongside the company's. And the whole file arrives at once, long after the decisions that created it, at a moment you did not choose. Which is the argument for settling the question before the trip rather than after the letter: beforehand it is a conversation about a job description and a delegation of authority, and those are things you still control.
Before anyone leaves, write down what the person may and may not do, in sentences a stranger could check: may they quote, may they discount, may they accept an order, may they hold stock, may they sign. Then make the company behave that way — offers issued from head office, approvals that are real, a card that does not advertise a local establishment, a warehouse that does nothing but store. If the honest answer is that they will be negotiating and closing, stop treating it as a tax question and treat it as a structure question, because the establishment exists either way and the only choice left is whether it is declared.