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Dependent agent: definition, meaning and examples

Dependent agent: definition, meaning and examples

What is a dependent agent?

A dependent agent is a person or company that acts on behalf of a foreign company in a particular country. This person or company has the authority to enter into contracts on behalf of the foreign company or to play a central role in the initiation of contracts. This concept is particularly relevant in international tax law.

The concept

The concept of a dependent agent is of crucial importance in international tax law. It plays an essential role in determining whether a foreign company has a taxable permanent establishment in another country. This article provides a comprehensive overview of the definition, meaning and examples of a dependent agent, its characteristics and differences from an independent agent, and its implications for taxation.

Significance for taxation

The presence of a dependent agent in a country can result in a foreign company being recognized as a taxable in that country. This is because the dependent agent can be regarded as a permanent establishment of the foreign company, which entails tax obligations.

Characteristics of a dependent agent

  1. Power of representation: The representative is authorized to conclude contracts on behalf of the foreign company.
  2. Regularity: The representative exercises this authority on a regular basis.
  3. Dependence: The representative is economically and legally dependent on the foreign company.
  4. Instruction-bound: The agent acts in accordance with the instructions of the foreign company.

Examples of dependent agents

  1. Sales employee
    • Situation: A US company employs a sales representative in Germany.
    • Activity: The employee regularly negotiates and concludes sales contracts on behalf of the US company.
    • Consequence: The employee could be considered a dependent agent, which could establish a permanent establishment of the US company in Germany.
  2. Sales representative
    • Situation: A French company uses a commercial agent in Spain.
    • Activity: The representative is authorized to acquire and conclude orders for the French company.
    • Consequence: If the representative regularly makes use of this power of attorney, he could be considered a dependent agent.
  3. Subsidiary
    • Situation: A German Ltd. founds a subsidiary in Austria.
    • Activity: The subsidiary acts exclusively for the German parent company and concludes contracts in its name.
    • Consequence: The subsidiary could be regarded as a dependent agent, which could have tax consequences for the parent company in Austria.
  4. Commission agent
    • Situation: A Japanese company uses a commission agent in Australia.
    • Activity: The commission agent sells products in its own name but for the account of the Japanese company.
    • Consequence: Depending on the exact structure, the commission agent could be regarded as a dependent agent.
  5. Technical support
    • Situation: A Canadian software company has a technical support employee in Mexico.
    • Activity: The employee not only provides support, but is also authorized to extend or expand license agreements for the software.
    • Consequence: This authority could make the support employee a dependent agent.

Differentiation from the independent agent

In contrast to a dependent agent, an independent agent acts for several clients in the course of his normal business activities and is economically and legally independent.

Examples of this are

  • Independent brokers
  • Commission agents who work for several companies
  • Sales representative with a diversified customer portfolio

Conclusion

The concept of a dependent agent is an important aspect of international tax law. Companies operating in other countries should carefully consider whether their agents or employees could be considered dependent agents in order to avoid unexpected tax consequences. The exact assessment often depends on the specific circumstances and can be complex, so it is advisable to seek tax advice.

FAQ

What is a dependent agent?

A dependent agent is a person or company that acts on behalf of a foreign company and concludes contracts or plays a central role in the initiation of contracts.

What is the significance of a dependent agent for taxation?

The presence of an agent may result in a foreign company being considered taxable in the country in which the agent operates, which may constitute a permanent establishment.

What are the characteristics of a dependent agent?

He has the authority to conclude contracts on behalf of a foreign company, exercises this authority regularly, is economically and legally dependent and acts in accordance with the instructions of the foreign company.

How does a dependent agent differ from an independent agent?

An independent agent acts for several clients in the course of its ordinary business activities and is economically and legally independent, whereas a dependent agent acts for a single foreign company and is dependent.

What are examples of dependent agents?

Examples: Sales staff, commercial agents, subsidiaries, commission agents and technical support staff working on behalf of a foreign company.

What are the consequences of being classified as a dependent agent?

It can result in the foreign company becoming liable for tax in the country in which the agent operates and establishing a permanent establishment.

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Disclaimer: Please note that the above dates, tax rates and regulations may change over time. Do not make any independent decisions without first consulting an expert for your individual situation. It is in your interest to always receive individual information from an experienced expert who knows your situation. This information is for informational purposes only and does not promote illegal activities, including tax evasion.

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