Permanent establishment principle limits taxation to profits attributable to a PE, with separate enterprise attribution.

Profits of an enterprise are taxable only in the State of residence unless business is carried on in the other Contracting State through a permanent establishment, in which case only profits attributable to that permanent establishment may be taxed there. Profits must be attributed as if the permanent establishment were a distinct and separate enterprise dealing independently; deductible expenses incurred for its purposes are allowed subject to local tax law, but deductions for payments to the head office or other offices (royalties, fees, commissions, management charges, interest) are disallowed.

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