Permanent establishment rules allocate taxable business profits to the host State for activities attributable to the PE.

Taxation of business profits is limited to the residence State unless the enterprise carries on business in the other State through a permanent establishment, in which case only profits attributable to that permanent establishment may be taxed. Attribution should reflect the profits the permanent establishment would earn as a distinct enterprise under similar conditions, allowing deductions for expenses incurred for the permanent establishment subject to the host State's tax law, and applying a consistent method year to year unless a good reason requires change.

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