Permanent establishment rules limit taxing rights to profits attributable to the PE, attributed on arm's length principles.

Business profits are taxable only in the residence State unless the enterprise operates through a permanent establishment in the other State; that other State may tax only profits attributable to the permanent establishment, attributed as if it were a distinct and separate enterprise on arm's length terms. Deemed profit rules under domestic law are permitted if consistent with the Article. Deductible expenses include executive and general administrative costs incurred for the permanent establishment. No profits are attributed solely from purchase of goods. The same attribution method should be used year to year unless justified otherwise.

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