Permanent Establishment Risk: The Line Your CPA Might Not See

You fly to a client's country for a three-month engagement. You work from their office, attend their meetings, make decisions about project direction. You invoice from your home entity. Your CPA files your taxes based on where that entity is registered.

But the country where you spent those three months may have a different view. From their perspective, you conducted substantial business activity on their soil. You used local resources. You made decisions with economic impact. Depending on the jurisdiction, this pattern can create what tax law calls a Permanent Establishment — and with it, a local tax obligation your home-country filing doesn't address.

What triggers a Permanent Establishment

A Permanent Establishment (PE) is, at its simplest, a sufficient business presence in a country to create a tax obligation there. The thresholds vary by jurisdiction and treaty, but the structural patterns that trigger them are consistent:

Physical presence over time. Most jurisdictions set day-count thresholds — 183 days is common, but some are lower. These thresholds can be calculated per calendar year, per rolling 12 months, or per engagement. The counting methodology matters: a consultant who spends 100 days in Country A across two calendar years might trigger a PE under rolling-period rules while appearing clean on a per-year basis.

Fixed place of business. Regular use of a client's office, a co-working space, or any location where business activity occurs repeatedly. "Regular" doesn't require daily presence — it requires a pattern. A consultant who works from a client's London office every Tuesday and Thursday for six months has established a pattern that looks, structurally, like a fixed place of business.

Decision-making authority. Signing contracts, committing resources, or making binding decisions on behalf of a business while physically present in another country. This is the least intuitive trigger — you don't need an office or a day count. A single meeting where you sign a significant contract can, in some jurisdictions, create an argument for business presence.

Dependent agent. Having someone in the client's country who habitually acts on your behalf — arranging deals, negotiating terms, committing your entity. Even a local contractor who regularly represents you can, structurally, function as a dependent agent.

Why your CPA might not see it

Most CPAs operate within a single jurisdiction's tax framework. They see your tax return, your income, your deductions. They file based on where your entity is registered and where you claim residency.

What they typically don't see:

• The day count — how many days you actually spent working in each client country, tracked against each jurisdiction's threshold.
• The activity pattern — whether your consulting engagements created a fixed-place-of-business argument in any jurisdiction.
• The treaty position — whether a double taxation treaty exists between your home country and the client's country, and whether its PE provisions have been triggered.
• The cumulative picture — three clients in three countries, each engagement below the individual threshold, but the aggregate travel pattern creating exposure in ways no single engagement reveals.

This isn't a failure of competence. It's a structural gap. The CPA sees one jurisdiction's filing requirements. The cross-border structural position spans multiple jurisdictions simultaneously.

The documentation gap

PE risk is particularly difficult to assess retroactively because the evidence needed is contemporaneous:

• Travel records showing days present in each jurisdiction
• Engagement contracts specifying location and duration of work
• Records of where key business decisions were made
• Communication trails showing the nature of activity in each location

Without this documentation, reconstructing your PE position years later relies on estimation, inference, and interpretation — none of which carry the same weight as real-time records.

The pattern is consistent across jurisdictions: contemporaneous documentation is treated as credible. Retroactive reconstruction is treated with skepticism. The gap between the two grows with every year of undocumented cross-border work.

What this looks like in practice

A cross-border consultant with clients in three countries. Home entity in the Netherlands. Tax residency claimed in Portugal.

• Client A: 45 days on-site in the UK across the year
• Client B: 60 days in Germany, working from client's Munich office
• Client C: 30 days in Singapore, with authority to sign project agreements locally

No single engagement obviously triggers a PE. But Germany's day count combined with the fixed-place-of-business pattern is worth examining. Singapore's dependent-agent rules and the contract-signing authority add another layer. The UK has its own rules about what constitutes a "regular" presence.

The consultant's CPA in Portugal sees income, applies Portuguese tax rules, and files accordingly. The structural position across three additional jurisdictions remains unexamined — not because anyone is negligent, but because no one is looking at the complete cross-border picture.

Seeing the position before it's examined

PE risk is structural, not transactional. It emerges from the pattern of how and where consulting work happens over time — not from any single trip or invoice.

Global Solo's META framework maps the Tax dimension of cross-border operations: where residency is claimed, where income-generating activity occurs, and whether the gap between the two creates unexamined obligations. The output is a structural diagnostic — a picture of where your position stands before a tax authority in any jurisdiction decides to draw their own.

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Visual: Permanent Establishment Trigger Assessment

Key Takeaways

• PE triggers include physical presence over time (183 days is common but some thresholds are lower), regular use of a fixed location, decision-making authority, and dependent agents acting on your behalf.
• Day-count thresholds can be calculated per calendar year, per rolling 12 months, or per engagement — a consultant spending 100 days across two calendar years might trigger PE under rolling-period rules.
• Most CPAs operate within a single jurisdiction's framework and do not track cross-border day counts, activity patterns, or treaty PE provisions.
• PE risk documentation must be contemporaneous — retroactive reconstruction is treated with skepticism and its evidentiary weight degrades with every year of undocumented cross-border work.

References

• OECD Model Tax Convention, Article 5 — Definition of Permanent Establishment under international tax treaties
• IRS International Tax Gap Series — IRS resources for US taxpayers with international activities
• UN Model Double Taxation Convention — Alternative PE definitions used in developing country treaties

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