Volume 72, Number 1 October 7, 2013

(C) Tax Analysts 2013. All rights reserved. Tax Analysts does not claim copyright in any public domain or third party content.
Agents vs. Commissionnaires:
A ComparisonIn Light of the OECD
Model Convention

by Leopoldo Parada

Reprinted from Tax Notes Int’l, October 7, 2013, p. 59

Electronic copy available at: http://ssrn.com/abstract=2720322


Agents vs. Commissionnaires: A Comparison
In Light of the OECD Model Convention
by Leopoldo Parada
Leopoldo Parada is an independent tax adviser on U.S. international tax matters for Soldo Consulting in
Sao Paulo, EQUM Consultoria Legal y Tributaria in Bogotá, and PONTUS SpA in Santiago de Chile.
T his article demonstrates the difference in legal na-
ture between the common law concept of agency
and the civil law concept of commissionnaire in light
of the interpretation and application of article 5(5) and
(6) of the OECD model income tax convention and its
commentaries.
According to article 5(5) of the OECD model, when
a person — other than an agent of independent status
to whom paragraph 6 applies — is acting on behalf of
an enterprise and has, and habitually exercises, in a
contracting state an authority to conclude contracts in
the name of the enterprise, that enterprise will be
deemed to have a permanent establishment in that state
regarding any activities that person undertakes for the
enterprise.1 Likewise, article 5(6) of the OECD model
provides that an enterprise will not be deemed to have
a PE in a contracting state merely because it carries on
business in that state through a broker, general com-
mission agent, or any other agent of an independent
status, provided such persons are acting in the ordinary
course of business.2
Both civil and common law attorneys are likely to
be confused by paragraphs 5 and 6, although for differ-
ent reasons. Common law attorneys may be puzzled
about the significance of the agent contracting in the
name of the principal. Civil law attorneys may wonder
1
Article 5(5) of the 2010 OECD model treaty.
2
Article 5(6) of the 2010 OECD model treaty.
TAX NOTES INTERNATIONAL
Electronic copy available at: http://ssrn.com/abstract=2720322
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why it is necessary that article 5(6) references brokers
and commission agents since they do not contract in
the name of the principal.
Section I of this article provides a general explana-
tion of the agency concept in common law, analyzing
the authority of the agent, the different types of agen-
cies, the responsibilities of the principal and agents
with third parties, and the distinction between dis-
closed and undisclosed agencies.
Section II analyzes the concept of agency under the
U.S. income tax law, specifically, Part I of the U.S. In-
ternal Revenue Code, subchapter N, sections 861-865,
in connection with reg. section 1.864-7(d). Section II
includes a brief description of the concept of depen-
dent, independent, and exclusive agent under the code
as well as explaining the authority of the agent to con-
clude a contract and to bind the principal. This section
explains how the construction and interpretation of
these concepts under common law legislation do not
differ from the actual commentaries on articles 5(5)
and (6) of the OECD model treaty.
Section III looks at the commissionnaire concept
under civil law and the interaction with article 5(5) and
(6) of the OECD model treaty. Also, we will try to an-
swer the question whether the civil law concept of
commissionnaire can be compared with the common
law concept of undisclosed agency.
Finally, Section IV summarizes the court opinions in
two civil law countries regarding recent cases that in-
volved the application of paragraph 32.1 of the OECD
commentary on article 5 in order to demonstrate how
troubling the application of articles 5(5) and (6) in civil
OCTOBER 7, 2013 • 59
FEATURED PERSPECTIVES
law countries can be when the commissionnaire con-
cept is not strictly equivalent to the common law con-
cept of agency giving rise to confusing and differing
legal interpretations in similar cases in the effort to lit-
erally apply the commentaries on article 5.
I. Agency
This section will provide a general explanation of
the concept of agency under common law. I will ana-
lyze the authority of the agent (which is the core of
this legal concept), the different types of agencies that
are found in the common law, and the responsibilities
of the principal and agents in the agency relationship
and with third parties. Finally, the important distinc-
tion between disclosed and undisclosed agents under
the common law is explained.
A. The Common Law Concept of Agency
An agency is the legal relationship in which one
person, an agent, is authorized by another, a principal,
to act on that person’s behalf, and is empowered to do
what the principal could lawfully do in person. The
principal thus assumes all the responsibilities of the
acts of the agent in altering legal relationships with
third parties on his behalf. In so dealing, an agency is
formed and the law of agency prescribes responsibili-
ties and liabilities to the principal and the agent. These
rules of law also delineate the responsibilities, obliga-
tions, and duties of dealing with third parties.3
Therefore, the concept of agency involves three per-
sons — a principal, an agent, and a third party. It ex-
ists to enable the agent and the third party to enter into
a contract, or other transaction, without dealing with
the principal. For this purpose, the agent must act with
the authority conferred by the principal.4
B. The Authority of the Agent
As noted above, the authorization is the basis of the
relationship between the principal and the agent. There
are several types of authority extended by two major
types of principals: actual and apparent authority.5 Ac-
tual authority is by far the most common type. It is the
authority specifically conferred by a principal. It con-
sists of express authority and implied authority.6 Ex-
press authority is given to the agent in writing or
orally, and sometimes by the conduct of the principal.
3
Dale Baze, ‘‘Common Law of Agency,’’ in: Oklahoma Real
Estate Principles, B&B Publishing (2009), at 2.
4 Id.
Some authors talk about the usual authorization as well.
However, there are some doubts as to whether this form has
been or should be recognized. See I. Turley, series editor, profes-
sor Philip H. Clarke, ‘‘Principles of Commercial Law,’’ Caven-
dish Publishing (Australia) Pty Limited, 2d Ed., London-Sidney,
2001, at 3.
5
Id. at 25.
6 14
Baze, supra note 3, at 4.
60 • OCTOBER 7, 2013
Implied authority is that which the agent reasonably
needs to perform express authority.7
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Finally, we have apparent (or ‘‘ostensible’’) author-
ity. This is conferred upon an agent by force of law to
protect innocent third parties who rely on the impres-
sion created by the principal that appropriate authority
has been conferred on a would-be agent. Such author-
ity may be created by the principal’s silence when there
is a duty to speak.8
C. Types of Agencies
The different types of agencies created depend on
the scope of responsibility given to the agent. Thus, the
classification of agencies is directly related to the
amount of authority given by the principal, ranging
from very little to complete authority.9 This implies
that there will be as many types of agents as degrees of
authority can exist.
Even with the above, a general classification distin-
guishes between special and general agents.10 A special
agent is one employed for the performance of a spe-
cific task. Once that is accomplished, the agency is ex-
tinguished.11 A general agent is one who has wide au-
thority to conduct a series of transactions of a
continuous nature on behalf of clients. With a general
agency, a principal gives the agent the power to trans-
act the affairs of the principal in a certain trade or
business.12
D. Responsibilities of Principal to Third Parties
In an agency relationship, there is only one contract
between the principal and the third party.13 No distinc-
tion is made in common law between direct or indirect
representation or between different types of agents.
Under common law, virtually all contracts made by an
agent bind the principal, even if the principal’s exis-
tence is not disclosed. Such an undisclosed principal is
bound by a contract made on his behalf by his agent
within the agent’s actual authority.14
Under U.K. law, the third party must decide
whether to take action against the agent or the princi-
pal, but in the United States if the third party obtains
7
Id.
8
Turley, supra note 4, at 26.
9
Baze, supra note 3, at 5.
10
11
Id.
12
Id.
13
J. Avery Jones (U.K.) and D. Ward (Canada), ‘‘Agents as
Permanent Establishments Under the OECD Model Tax Con-
vention,’’ 1 Brit. Tax Rev. 346 (Sweet and Maxwell, London,
1993).
Id.
TAX NOTES INTERNATIONAL

judgment against the agent without knowledge of the
principal, the third party can subsequently take action
against the principal.15
It is the principal who owes the duty to the third
person to perform contracts negotiated by the autho-
rized agent.16 If the contract is not performed, the third
party may hold the principal liable for breach of con-
tract. Likewise, the third party is responsible to the
principal for performing contracts made through the
agent.17
E. Responsibilities of Agents to Third Parties
While agents must be primarily loyal to principals,
agents must also be fair and honest with third parties.
Agents owe customers a duty of fairness and good
faith.18
Nevertheless, if the agent has authority to negotiate
a contract with a third party on behalf of the principal,
the agent has no personal responsibility for performing
the contract.19 Also, if the principal whose identity is
known fails or refuses to perform, the agent cannot be
held liable for the nonperformance of the principal to
third parties.
Even with the above, if the agent negotiates a con-
tract for the principal without revealing the existence of
or the identity of the principal, the agent can be held
personally liable for the performance of the contract by
the third party. In this latter situation, the agent may
also hold the third party responsible for performance.20
Also, an agent is personally responsible to the third
party for any tort committed, with or without the per-
mission of the principal.21
F. Disclosed and Undisclosed Agency
The disclosed and undisclosed agents are closely
related to the concepts of disclosed and undisclosed
principals. When a third person is contracting with the
agent and he knows that the agent acts openly in the
name of the principal, that situation is a disclosed
agency. Under this situation, the agent has no personal
15
Id. ‘‘An exception applies where the terms of the contract
specifically exclude the liability of the undisclosed principal, and
also in common law countries other than the United States
where the terms of the contract are inconsistent with the exis-
tence of the principal, such as the agent describing himself as
the owner of a ship in the contract.’’ Id. at 347 (referring to
Humble v. Hunter (1848), 12 Q.B. 310).
16
During the 19th and part of the 20th century, the common
law operated in a way that was closer to civil law regarding con-
tracts made by an agent on behalf of a foreign principal, that
were not binding on the principal. However, the common law
has now abandoned this presumption. Id.
17
Baze, supra note 3, at 9.
18
Id.
19
Id.
20
Baze, supra note 3, at 9 and 10.
21
Id.
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FEATURED PERSPECTIVES
responsibility for performing the contract. Therefore, if
the principal whose identity is known fails or refuses to
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perform, the agent cannot be held liable for the non-
performance of the principal.
Likewise, if a third party (customer) has no knowl-
edge that the agent is acting for a principal, then both
the agency and the principal are undisclosed.22 The
agent of an undisclosed principal can be held liable on
the contract as the real obligor since he contracted in
that capacity. Similarly, an undisclosed principal can
also be held liable as he must also assume its burdens.
II. Agency Under U.S. Income Tax Law
This section provides a brief description of the con-
cept of dependent agency, independent agency, and
exclusive agent under the U.S. income tax law as well
as a special reference to the authority of the agent to
conclude a contract and to bind the principal, the main
factor in the relationship between principal and agent.
Under U.S. income tax law, agency activity is
treated in Part I of IRC subchapter N, sections 861 to
865. Also, reg. section 1.864-7(d) specifically treats the
concept of agency.
A. Independent Agency and Dependent Agency
According to reg. section 1.864-7(d)(3)(i), the term
‘‘independent agent’’ means:
[A] general commission agent, broker, or other
agent of an independent status acting in the ordi-
nary course of his business in that capacity.23
As noted, the regulation treats the terms ‘‘broker,’’
‘‘general commission agent,’’ and ‘‘agent of an inde-
pendent status’’ as synonyms for ‘‘independent agent’’
to the extent that those individuals or entities ‘‘act in
the ordinary course of business.’’24
What makes an agent dependent is that in his rela-
tionship with the principal the agent is not running its
own business, but rather is just serving as a domestic
surrogate.25
An employee is usually treated as a dependent agent
under the rules in subparagraph (d)(1) if his foreign
employer does not have an office or fixed place of
business in the United States.26 However, if the em-
ployer does have an office and the employee usually
works in that office, then the employer will be taxable
22
Bems, Inc. v. Shelter Commercial Properties, Div. of U.S. Shelter
Corp., 1991 Tenn. App. LEXIS 19 (Tenn. Ct. App. Jan. 9, 1991),
available at http://tn.findacase.com/research/
wfrmDocViewer.aspx/xq/fac.19910109_0015.TN.htm/qx.
23
Treas. reg. section 1.864-7(d)(3)(i).
24
Martin B. Tittle, ‘‘A Unified Approach to Permanent Estab-
lishment by Agent in the U.S.,’’ Tax Notes Int’l, Nov. 5, 2007, p.
597.
25
Id.
26
Reg. section 1.864-7(d)(1).
OCTOBER 7, 2013 • 61
FEATURED PERSPECTIVES
by virtue of the office, and whether the employee also
satisfies the dependent agent criteria is irrelevant. The
regulation provides that a dependent agent must have
an office for the foreign principal to be deemed to have
one.27
B. Exclusive Agents
More than a separate category of agency itself, the
exclusivity of the services provided by the agent to one
exclusive principal is a factor to determine whether an
agent that otherwise would be considered an indepen-
dent agent is a dependent agent. In other words, the
number of clients served by the agent indicates
whether the agent’s business enterprise is commercially
dependent upon the principal.28
This principle is expressly provided in reg. section
1.864-7(d)(3)(iii), which establishes that:
Where an agent who is otherwise an independent
agent within the meaning of subdivision (i) of
this subparagraph acts in such capacity exclu-
sively, or almost exclusively, for one principal
who is a nonresident alien individual or a foreign
corporation, the facts and circumstances of a par-
ticular case shall be taken into account in deter-
mining whether the agent, while acting in that
capacity, may be classified as an independent
agent.29
C. Concluding Contracts and Filling Orders
The authorization is the basis of the relationship
between the principal and the agent. Reg. section
1.864-7(d)(1)(i) provides that:
[A]n agent shall be considered regularly to exer-
cise authority to negotiate and conclude contracts
or regularly fill orders on behalf of his foreign
principal only if the authority is exercised, or the
orders are filled, with some frequency over a con-
tinuous period of time. This determination shall
be made on the basis of the facts and circum-
stances in each case, taking into account the na-
ture of the business of the principal; but in all
cases, the frequency and continuity tests are to be
applied conjunctively. Regularity shall not be evi-
denced by occasional or incidental activity. An
agent shall not be considered regularly to negoti-
ate and conclude contracts on behalf of his for-
eign principal if the agent’s authority to negotiate
and conclude contracts is limited only to unusual
cases or such authority must be separately se-
cured by the agent from his principal with respect
to each transaction effected.30
27
See Tittle, supra note 24, at 599.
28
Juris A. Skaar, ‘‘OECD — Analysis Article 5 OECD Model
Convention,’’ Westlaw, 2005, at 93.
29
Reg. section 1.864-7(d)(3)(iii).
30
Reg. section 1.864-7(d)(1)(i).
62 • OCTOBER 7, 2013
Reg. section 1.864-7(d)(1) gives two alternative crite-
ria that govern whether the office of an agent, who is
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not an independent agent, will be attributed to its prin-
cipal. According to subparagraph (d)(1), the agent must
first ‘‘have the authority to negotiate and conclude con-
tracts in the name of the [foreign principal],’’31 and
then it must ‘‘regularly exercise that authority.’’32 The
second criterion is the possession of a stock of mer-
chandise belonging to the foreign principal from which
orders are regularly filled on behalf of the principal.33
III. Commissionnaire
The concept of commissionnaire has been under-
stood, mostly in common law countries, as being syn-
onymous with the concept of agency; however, it is
not. A correct understanding of the commissionnaire’s
legal nature is crucial to determine the tax conse-
quences that could arise in the application of article 5
of the OECD model treaty.
This section explains the commissionnaire concept
under civil law, its main characteristics, and its interac-
tion with article 5(5) and (6) of the OECD model
treaty.
A. Commissionnaire Arrangement (Civil Law)
The commissionnaire arrangement is a civil law
concept that has no direct counterpart in common law.
A commissionnaire is an intermediary that acts toward
customers in its own name, but for the account of a
principal.34 Consequently, a commissionnaire arrange-
ment always involves the following three parties:
• the principal, which calls on the services of an
intermediary;
• the commissionnaire, which acts for the account
of the principal in exchange for remuneration;
and
• a third-party customer, which conducts business
with the commissionnaire.
Under the law of contracts, there are two separate
contractual relationships:
• one between the principal and the commission-
naire (that is, the commissionnaire agreement);
and
• one between the commissionnaire and the third-
party customer.
31
Tittle, supra note 24.
32
Reg. section 1.864-7(d)(1)(i).
33
Id.
34
There are different types of commissionnaires, such as pur-
chasing commissionnaires, sales commissionnaires, commission-
naires in exchange transactions (exchange agents), dispatching
commissionnaires, and transportation commissionnaires. This
article only deals with PE issues regarding sales commission-
naires.
TAX NOTES INTERNATIONAL

A commissionnaire arrangement, therefore, entails
an ‘‘indirect representation.’’35 Since the commission-
naire acts in its own name, it is the only one that is
personally liable toward the third-party customer (and
vice versa).36
Consequently, if the principal does not deliver the
product to the customer, the customer cannot initiate
legal action against the principal.37 Also, if the cus-
tomer does not pay the full amount of the price on the
stipulated date, only the commissionnaire can file a
claim against the customer.
Common law proceeds on the opposite basis. There
is only one contract made between the principal (acting
through the agent, rather than personally, but this
makes no difference) and third party.38 No distinctions
are made in common law between direct or indirect
representation. According to civil law terminology, all
common law agency contracts have the same effect as
direct representation.39
B. ‘Undisclosed Agent’ (Common Law)
A commissionnaire is not the same as the common
law concept of an undisclosed agent.40 As noted above,
under common law no distinction is made between
direct and indirect representation. Specifically, under
the law of agency, an agent is any person that receives
from its principal an authority to conclude contracts
and by doing so automatically engages that principal
personally.
A civil law commissionnaire, however, acts for the
account of the principal, but does so in its own name.
It is, therefore, the only one that is engaged personally
with the customers.41 The principal is not a party to
the contracts between the commissionnaire and the
customers. Likewise, the principal is only engaged with
the commissionnaire. Since it acts in its own name, the
commissionnaire issues invoices to the customers. In
35
An example of direct representation is the commercial
agent, who normally contracts in the name of the principal.
Meanwhile, the usual example given of an indirect representative
is that of the commissionnaire, who normally contracts in his
own name. See Avery Jones and Ward, supra note 13, at 345.
36
Michael F. Swanick, Mark Mudrick, and Erik Bouwman,
‘‘Tax and Practical Issues in Commissionaire Structures,’’ Tax
Notes, Jan. 27, 1997, p. 499.
37
Lee Sheppard, ‘‘Tweaking the Permanent Establishment
Concept,’’ Tax Notes Int’l, Jan. 4, 2010, p. 18.
38
Avery Jones and Ward, supra note 13.
39
Id.
40
A. Deitmer, I. Dorr, and A. Rust, Invitational Seminar on
Tax Treaty Rules Applicable to Permanent Establishments — in
Memoriam of Prof. Dr. Berndt Runge, Seminar Report, Bull. Tax
Treaty Monitor, IBFD, May 2004, at 185.
41
T. Wustenberghs and E. Puncher, ‘‘France/Belgium: Zimmer
à la Belge: Could a Commissionaire Arrangement Create an
Agency Permanent Establishment in Belgium?’’ 65 Bull. Int’l
Tax’n 4/5 (2011), at 239.
TAX NOTES INTERNATIONAL
FEATURED PERSPECTIVES
the flow of goods, however, there is only a link be-
tween the principal and the customer.42 The title of the
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goods passes directly from the principal to the cus-
tomer. Since the commissionnaire is only an intermedi-
ary, the entire turnover related to its sale activities is
attributable to the principal (after the deduction of an
arm’s-length fee for the commissionnaire).43
C. Commissionnaire and Permanent Establishment
Having analyzed the concept of commissionnaire
under civil law, the question whether the principal has
a taxable presence (that is, a PE) in the country where
the commissionnaire is located arises immediately. And
the answer essentially boils down to whether the com-
missionnaire may bind the principal.44
Under article 5(5) of the OECD model treaty, a PE
exists if the commissionnaire has authority to conclude
contracts in the name of the principal, and therefore
has authority to bind the principal.45 It has been ar-
gued that article 5(6) provides an exception to article
5(5); that is, if the commissionnaire is acting as an in-
dependent agent or acting in the ordinary course of its
business, the principal will not have a PE.46 Most com-
mentators view article 5(6) as a safe harbor rule that
applies when a person is acting in the name of the
principal.47 A commissionnaire that performs services
only for one principal is not likely to fall within the
scope of article 5(6) since it is more or less economi-
cally dependent on the principal.48
The tax treatment of a principal under a commis-
sionnaire arrangement will vary depending on whether
it is located in a common law or a civil law country.
Common law countries generally treat the undisclosed
agent as binding the principal, whereas in civil law
countries the principal is not bound unless the commis-
sionnaire is acting in the name of the principal and not
in its own name. Therefore, a commissionnaire ar-
rangement almost always will be deemed to give rise to
a PE in common law countries. In civil law countries,
the risk of having a taxable presence only would arise
when domestic law treats the commissionnaire as bind-
ing the principal.49
42
A. Pleijsier, ‘‘The Agency Permanent Establishment: Practi-
cal Applications, Part Two,’’ Intertax, 2001, at 219.
43
Wustenberghs and Puncher, supra note 41.
44
Sheppard, supra note 37.
45
2002 Reports Related to the OECD Model Tax Convention,
No. 8, OECD, 2003, at 104.
46
E. Remer, N. Urban, and S. Schmid, ‘‘Permanent Establish-
ments: A Domestic Taxation, Bilateral Tax Treaty and OECD
Perspective,’’ Wolters Kluwer Law and Business and Pricewater-
houseCoopers (2010/2011), at 102.
47
Swanick et al., supra note 36, at 5.
48
Supra note 45, at 110.
49
Swanick et al., supra note 36.
OCTOBER 7, 2013 • 63
FEATURED PERSPECTIVES
IV. The Zimmer and Dell Cases
This section summarizes the court opinions in two
civil law countries involving the application of para-
graph 32.1 of the OECD commentary on article 5,
which refers specifically to the interpretation of the
authority to conclude contracts ‘‘in the name of ’’ the
principal regarding a commissionnaire and whether
this authority could give rise to a PE in those coun-
tries.
This section demonstrates how troubling the applica-
tion of article 5(5) and (6) in civil law countries can be
when the commissionnaire constitutes a legal concept
not strictly equal to the common law agency concept.
Both cases are based on the determination of the
authority to act on behalf of another in order to be
deemed a dependent agency PE.
A. Summary of the Facts
The issue in both the Zimmer and Dell cases was
whether Zimmer SAS and Dell AS, acting in the com-
mercial capacity as commissionnaire for their respec-
tive principals, exercised an authority to conclude con-
tracts ‘‘in the name of ’’ their principal.50 Under French
and Norwegian commercial law, the contracts entered
into by an entity acting under the commercial relation-
ship of commissionnaire are entered into in the name
of the commissionnaire, not the principal, and are en-
forceable by the customer under the law of contract
only against the entity that entered into the contract.51
A principal that does not supply product to the com-
missionnaire for delivery under the contract entered
into by the commissionnaire is at risk of being sued for
specific performance or damages by the commission-
naire. Nonperformance under the contract of sale gives
rise to contractual claims by the customer against the
commissionnaire, not against the principal. Product
liability claims, of course, may lie against the manufac-
turer directly under applicable law.
B. Legal Analysis
Paragraph 32.1 of the OECD commentary on ar-
ticle 5 provides that:
The authority to conclude contracts in the name
of the enterprise does not confine the application
of the paragraph to an agent who enters into con-
tracts literally in the name of the enterprise; the
paragraph applies equally to an agent who con-
cludes contracts which are binding on the enter-
prise even if those contracts are not actually in
the name of the enterprise.52
50
G. Sprague, ‘‘Applying (and Misapplying) the OECD Com-
mentary in Commissionaire PE Cases,’’ Int’l J., Tax and Ac-
counting Center, 2011, at 2.
51
Id.
52
In 1992 the United Kingdom lodged an observation to the
article 5 commentary as follows:
(Footnote continued in next column.)
64 • OCTOBER 7, 2013
In both cases under analysis, the contracts with the
customers were executed only between the local cus-
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tomer and the local legal entity, and therefore, they
‘‘were not in the name’’ of the nonresident enter-
prise.53 However, the tax authorities in both cases ar-
gued that paragraph 32.1 supported the position that
the treaty language should not be applied literally.
Note also that under the common law concept of
agency, the contracts entered into by an agent — even
if the principal for which the agent is acting is not dis-
closed to the counterparty at the time of contracting —
are contractually binding on the principal, and the
counterparty may demand performance directly from
the principal once the principal is identified. This is
different from the law of commissionnaire relation-
ships. Common law countries do not include the com-
mercial relationship of commissionnaire, as such exists
under the laws of France, Norway, and other civil law
jurisdictions.54
Therefore, it seems the intention of paragraph 32.1
of the OECD commentary on article 5 was to express
a conclusion that arises under the application of com-
mon law agency concept, but it was not intended at the
time to give guidance on other situations,55 which have
given rise to different and confusing interpretations.
C. Resolution of Zimmer in France
The court of appeal stated:
the fact that Zimmer SAS, pursuant to its com-
missionaire status, acted in its own name and
could not actually conclude contracts in the name
of the principal was inefficient considering its
ability to bind its principal in a commercial trans-
action pertaining to its own activities.56
The court pointed out that Zimmer SAS was
deemed to be a dependent agent because it acted under
the control and instructions of the principal concerning
sales modalities and promotion projects.57 Note that
the principal was bearing the risks of the activities and
that Zimmer SAS was acting exclusively for Zimmer
The United Kingdom considers that an agent who is not
an agent of independent status within paragraph 6 of this
Article and who has the characteristics described in para-
graphs 32 and 33 above will represent a permanent estab-
lishment of an enterprise if he has the authority to con-
clude contracts on behalf of that enterprise whether in his
own name or that of the enterprise.
When paragraph 32.1 was modified, the U.K. removed its
observation. Sprague, supra note 50.
53
Sprague, supra note 50, at 3.
54
Id.
55
Id.
56
N. Cordier, ‘‘France-Permanent Establishments,’’ Topical
Analyses, IBFD (accessed Sept. 21, 2011).
57
Id.
TAX NOTES INTERNATIONAL

Limited U.K. It was like a puppet in the hands of the
principal and did not act in the ordinary course of its
activities.58
However, the Supreme Administrative Court re-
versed this decision. Based on a purely legal approach,
it ruled that a French commissionnaire should not con-
stitute a PE in France of its U.K. principal in light of
the France-U.K. income tax treaty.59
The Supreme Administrative Court stated that the
legal definition of a commissionnaire is a person who
can act in its own name on behalf of its principal with-
out binding the latter to its co-contracting parties.60
Therefore, as long as the commissionnaire arrangement
does not create a direct link between the foreign princi-
pal and its domestic contracting parties, the commis-
sionnaire cannot be treated as a dependent agent of the
foreign principal.61
D. Resolution of Dell in Norway
In Dell, the Borgarting High Court concluded that
paragraph 32.1 means that the treaty ‘‘cannot be inter-
preted literally.’’62 It then proceeded to rely on factors
such as the following as justifications for concluding
that a dependent agency PE existed:
• the fact that the products were sold under the Dell
trademark;
• that the sales terms were standard; and
• that Dell Products Ltd. shipped products against
all orders forwarded by Dell AS.
Despite the conclusion provided, note that Dell is
still on appeal. Therefore, it will be interesting to ob-
58
Id.
59
Id.
60
Sprague, supra note 50, at 4.
61
Id.
62
The conclusion of the Norwegian Court was similar to the
conclusion provided by the lower court in France regarding the
Zimmer case.
TAX NOTES INTERNATIONAL
FEATURED PERSPECTIVES
serve whether these elements relied on by the Borgarting
High Court are in no way an indication that the com-
(C) Tax Analysts 2013. All rights reserved. Tax Analysts does not claim copyright in any public domain or third party content.
missionnaire has a legal power to bind the principal.63
V. Final Comments
The common law concept of agency and the civil
law concept of commissionnaire are not equal and
their interpretation in light of the article 5 of the
OECD model treaty must be carried out according to
the understanding of their different legal nature. As the
commissionnaire concept is unknown in common law
countries, this is treated as a simple undisclosed agent.
Consequently, the commissionnaire is deemed to bind
the principal, and thus, a commissionnaire arrange-
ment will almost always be deemed to give rise to a PE
in common law countries. Nevertheless, the risk for a
commissionnaire of having a taxable presence in civil
law countries only would arise when domestic law
treats the commissionnaire as binding the principal.
The confusion created in the interpretation of article
5(5) and (6) and its commentaries is based on the treat-
ment given to the commissionnaire as if it were a
simple undisclosed agency under common law. We
have seen that the concept of agency under the U.S.
IRC is treated basically the same as that under article 5
of the OECD model treaty. This has led to several mis-
takes in the application of the OECD model tax treaty
between common and civil law countries. Clear
examples of that are the opinions of the Supreme
Administrative Court in France in Zimmer and the
Borgarting High Court in Norway in Dell.
The OECD should provide further guidance on cer-
tain interpretative issues under article 5(5) and (6) and
its commentaries and should clarify the original intent
of paragraph 32.1 of the commentaries on article 5(5)
and (6) as presenting an accurate reflection of the law
of agency between common and civil law jurisdic-
tions. ◆
63
Sprague, supra note 50.
OCTOBER 7, 2013 • 65