Permanent establishment: profits attributable to a PE may be taxed in the other state under arm's length attribution rules.

Taxation of business profits is confined to the State of residence unless the enterprise operates in the other State through a permanent establishment; then only profits attributable to that permanent establishment, sales or similar activities may be taxed there. Attributable profits are determined as though the permanent establishment were an independent enterprise dealing at arm's length, permitting deductions for business expenses subject to local limitations, while disallowing non reimbursed intercompany charges such as royalties, management fees and, except for banks, interest.

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