Permanent establishment determines which state may tax business profits; attributable profits follow separate enterprise principles. Profits of an enterprise are taxable only in its State of residence unless the enterprise carries on business in the other Contracting State through a permanent establishment; profits attributable to that permanent establishment may be taxed only in the State where it is situated. Attribution must reflect the profits the permanent establishment would make as a distinct and separate enterprise under similar conditions, with reasonable computation allowed where precise determination is impracticable. Deductions for expenses incurred for the permanent establishment are permitted subject to local disallowance rules; customary apportionment methods remain permissible if consistent with this Article. Purchases by the permanent establishment do not by themselves give rise to attributed profits, attribution methods should be applied consistently, and other Convention provisions govern separately dealt-with income.