The team “just helped” until the country said you were there
The old expansion shortcut was simple: no office, no local company, no taxable presence. That shortcut is no longer safe enough for serious operators. In current treaty analysis, PE risk can be driven by how people work, who moves the deal forward, where the activity happens, and whether local law also creates a domestic nexus or filing question. OECD Action 7 sharpened the dependent-agent analysis, and the OECD’s 2025 update to the Model Tax Convention Commentary added much more detailed guidance on when a home or other relevant place may be treated as a place of business of the enterprise.
A common Tier 2 or Tier 3 expansion path shows the problem. A company enters through a distributor, then adds a local salesperson to “support the partner.” Headquarters still signs the contract, but the local person walks the customer through pricing, scope, and closing steps. If that local activity becomes the substantive driver of deals that headquarters routinely finalizes without material change, PE analysis becomes real even without a lease. OECD Action 7 was designed for this pattern.
What it is and who it is for
This article is for operators expanding sales, delivery, or regional support into Tier 2 and Tier 3 markets through distributors, contractors, remote staff, project teams, or hybrid models. It is especially relevant where the business wants faster market access without triggering unexpected corporate tax filings, profit attribution disputes, payroll questions, or penalties. Whether PE exists will still depend on the applicable treaty text, domestic law, and facts on the ground. The point is not that every cross-border team creates PE. The point is that the risk now sits inside operating design, not just tax structuring.
Execution model: How PE risk is created in practice
In treaty terms, PE can arise through a fixed place of business or through a dependent-agent pattern. The dependent-agent side no longer focuses only on formal signature authority. OECD Action 7 broadened the analysis to cover cases where a person habitually performs the substantive selling role that leads to contracts the enterprise routinely concludes without material modification. That is why “HQ signs, local team closes” is not a clean defense by itself.
The fixed-place side also needs a more current lens. In the OECD’s 2025 Commentary update, a home or other relevant place is not automatically a place of business of the enterprise. But the Commentary says such a place would generally not be considered a place of business if the individual works there for less than 50 percent of total working time for the enterprise over a relevant twelve-month period. At or above that threshold, the answer depends on facts and circumstances, with commercial reason treated as a prominent consideration.
Market and capital reality check
The cash question matters. Who invoices the customer? Which entity receives the revenue? In what currency is the commercial activity priced and settled? Under what legal setup does the market entry operate: distributor agreement, services agreement, commission model, direct contracting from headquarters, or local project delivery? These are not just finance questions. They are part of the PE evidence file because authorities look at which activities generated the revenue and which enterprise benefited from in-country functions. OECD Action 7 focuses directly on the link between local activity and contract conclusion, while domestic rules can still create additional nexus questions even where treaty protection may later be argued.
The return question matters too. If the local footprint is presented as “support only,” but the economics show that local people are materially driving sales, renewals, implementation, or customer retention, the mismatch becomes harder to defend. What can go wrong is not limited to extra tax. The practical fallout can include late registrations, profit attribution disputes, withholding mismatches, document requests, and banking friction when invoicing, signatories, and in-country activity do not tell the same story. The article should frame this as execution risk with tax consequences, not as a narrow legal technicality.
Key numbers and assumptions
A useful PE screen for operators is:
Role × Authority × Duration × Revenue linkage
When all four point in the same direction, risk rises.
Three hard anchors support that screen. First, OECD Action 7 targets people who habitually conclude contracts or habitually play the principal role leading to contracts that are routinely finalized without material change by the enterprise. Second, the OECD’s 2025 Commentary says that below 50 percent working time at a home or other relevant place, that place would generally not be treated as the enterprise’s place of business; at or above 50 percent, the analysis turns on facts and circumstances, especially commercial reason. Third, India’s Income-tax Act, section 9(1)(i) Explanation 2, includes a business-connection rule that captures a person who habitually concludes contracts or habitually plays the principal role leading to the conclusion of contracts by a non-resident, with the cited amendment effective from 1 April 2019.
Three failure paths operators should assume are possible
1. The distributor is independent on paper, but not in substance
This route breaks when your own team in-market steers pricing, terms, and customer commitment, or when the distributor is economically dependent and functionally acts like your sales arm. The treaty question is not what the org chart says. It is what activity in-country directly leads to contracts.
2. The local hire “does not sign,” but effectively closes
This is the principal-role trap. If local staff repeatedly take the customer from active negotiation to ready-to-sign terms, and headquarters routinely formalizes the deal, the lack of signature authority may not save the structure. OECD Action 7 specifically addresses that substantive pattern.
3. Cross-border remote work becomes a place-of-business issue
A senior employee working from home in-market is not automatically PE. But sustained working time, combined with a commercial reason for the enterprise’s activity being carried on there, can move the issue from incidental remote work into fixed-place analysis. That is the central shift in the 2025 Commentary update.
The playbook: expansion pathways that scale with fewer surprises
Pathway A: Distributor-led entry
This works best where the distributor is genuinely independent, authority limits are explicit, and your own staff do not become the real contracting engine. Keep the contract clear on scope, pricing authority, and who negotiates essential terms. Maintain deal files showing where approvals happened and who made them. The objective is coherence between the commercial story and the actual operating record.
Pathway B: Local hires or contractors
This works only if authority is disciplined. Build an authority matrix that separates proposal support from approval and finalization. Track executive travel and local activity. Make sure communications do not show a recurring pattern in which local personnel close and headquarters merely rubber-stamps. That is the factual pattern the treaty commentary is aimed at testing.
Pathway C: Project delivery teams
This becomes sensitive when repeated client-site work, long-duration delivery, or a stable local working pattern starts to resemble a fixed place through which business is carried on. Use time thresholds, site protocols, and document discipline. Review whether the project structure still matches the contracting model and invoicing chain. The risk here is not just one long project. It is a repeated pattern that becomes part of how the enterprise operates in that market.
Red flag matrix
Treat PE as a live review issue when several of these stack together:
A local person repeatedly performs the substantive role that leads to contracts.
A senior employee works in-market from a home or other relevant place for a sustained share of total working time.
There is a commercial reason for the business to be carried on in that location.
Local activity, invoicing, and contracting sit in different places with no coherent explanation.
Domestic law in the target market contains broader nexus or business-connection language even where treaty relief may later be available. India’s current section 9 language is a useful example of that domestic-law layer.
Variants and alternatives
The cleanest alternative is often earlier formalization. If a market is producing repeatable revenue and repeatable local activity, it may be safer to register, localize the operating model, and document the economics properly than to keep defending an “informal” footprint that is no longer informal in practice. The right answer will depend on treaty coverage, domestic law, business margin, and growth plan. But in editorial terms, the new PE playbook is not “avoid presence at all costs.” It is “match legal form to operating reality before the market does it for you.”
Sources
OECD, Preventing the Artificial Avoidance of Permanent Establishment Status, Action 7: 2015 Final Report, published 5 October 2015.
OECD, The 2025 Update to the OECD Model Tax Convention, approved by OECD Council on 18 November 2025 and published 19 November 2025. Relevant Commentary updates address home or other relevant places, the 50 percent working-time indicator, and commercial reason.
India Income-tax Act, 1961, section 9(1)(i), Explanation 2, as shown on India Code; the cited amendment to clause (a) is noted as effective 1 April 2019.
Disclosure
This article is general information, not personal investment, tax, or legal advice. It reflects conditions and data available as of March 2026. I-Invest Magazine and the author do not receive compensation from entities mentioned unless explicitly stated. Readers should obtain independent professional advice before taking action.
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