Permanent establishment determines taxable business profits; only profits attributable to the PE may be taxed in the source state.

Profits of an enterprise are taxable only in the State of residence unless the enterprise carries on business in the other Contracting State through a permanent establishment, in which case only profits attributable to that permanent establishment may be taxed by the other State. Attribution follows the separate and distinct enterprise principle, allowing deductions for expenses incurred for the permanent establishment's business, permitting customary apportionment consistent with the Article, excluding attribution merely for purchases, and requiring consistent year-by-year application unless sufficient reason exists to change.

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