Dell Products vs. State (Supreme Court, Norway)

In absence of “legal right” to bind principal, Dependent Agent is not “PE”

The assessee, a company registered in the Netherlands but resident in Ireland for tax purposes appointed Dell AS, a Norwegian company, as its “commissionaire” for sales to customers in Norway. Dell AS entered into agreements in its own name and its acts (under the commission agreement and Commission Act) did not bind the principal. The assessee claimed that it was not taxable in Norway in respect of the products sold through Dell AS on the ground that Dell AS was not its “Dependent Agent Permanent Establishment” (DAPE) under Article 5(5) of the Norway-Ireland DTAA on the ground that (a) the agent had no authority to enter into contracts “in the name of the assessee” and legally bind the assessee and (b) the agent was not a “dependent” agent. However, the income-tax department took the view that Dell AS constituted a PE under Article 5(5) of the DTAA and that 60 percent of Dell Products’ net profit on sales in Norway was attributable to the PE. This was confirmed by the Oslo District Court. On appeal by the assessee, the Court of Appeal held that for Article 5(5) of the DTAA, the question whether the agent has the authority to conclude contracts on behalf of the enterprise had to be considered, not from a literal sense whether the contracts are “in the name of the enterprise”, but from a functional sense whether the agent “in reality” binds the principal. On further appeal, HELD reversing the Court of Appeal:

Article 5(5) of the DTAA provides that “when a person, not an independent status to whom paragraph 6 applies, acting on behalf of an enterprise and has and habitually exercises in a Contracting State authority to conclude contracts on behalf of the enterprise, that enterprise shall be deemed to have a permanent establishment in that State for any activities which that person undertakes for the enterprise.” There is no dispute that Dell AS is not an independent agent. The expressions “on behalf” and “have authority to conclude contracts on behalf of” in Article 5(5) mean that the contracts must be legally binding. These expressions must be given their normal meaning as per the Vienna Convention. This is also supported by the Commentary on the OECD Model Convention on which the DTAA is based. A similar view has been taken by the Conseil d’Etat of France in Zimmer (included with the Appeal Court’s order). As the language of the Article is clear, it is not possible to adopt the “functional approach” proposed by the Revenue. Consequently, Dell Products does not have permanent establishment in Norway.