Permanent establishment: profits taxable only when attributable to the PE; attribution rules limit deductions and require consistent methods.

Profits are taxable only in the State of residence unless attributable to a permanent establishment in the other State; attributable profits are determined by treating the permanent establishment as a distinct and separate enterprise. Deductions are allowed for expenses incurred for the permanent establishment, but inter-office payments (other than reimbursement of actual expenses), including royalties, fees, commissions, management charges and, except for banking enterprises, interest, are not deductible or to be taken into account. Apportionment methods may be used if consistent with these principles, and the attribution method must be applied year to year.

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