Article 5 of the Convention, although the OECD Model contains a

twelve-month, rather than a six-month, test. Turkey entered a
reservation to Article 5 of the OECD Model, specifying that it
intends to apply a six-month rather than a twelve-month thresh­
old.

   Unlike many U.S. treaties, Article 5 of this Convention does
not deal explicitly with the determination of when an installa­
tion or drilling rig or ship used for the exploration or exploi­
tation of natural resources constitutes a permanent establish­
ment. Point IV of the Protocol, relating to Articles.5, 7
(Business Profits) and 14 (Independent Personal Services),
however, does deal with the income derived from such an installa­
tion, rig, or ship. Point IV specifies that the mere presence in
one Contracting State of an installation, drilling rig, or ship
that a resident of the other Contracting State uses for the
exploration or exploitation of natural resources will never
constitute a permanent establishment of that resident. If,
however, a resident of one State carries on the drilling activi­
ties in the other Contracting State for a period or periods
exceeding in the aggregate 183 days in any continuous 12-month
period or performs the activities through a permanent establish­
ment other than the drilling rig or ship, that presence or
performance shall be treated as analogous to a permanent estab­

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lishment, and the other Contracting State may tax the resulting
income.

   Paragraph 3

Paragraph 3 contains exceptions to the general rule of
paragraph 1 that a fixed place of business through which a
business is carried on constitutes a permanent establishment.
The paragraph lists activities that may be carried on through a
fixed place of business but that will not give rise to a perma­
nent-establishment. The use of facilities solely to store,
display or deliver merchandise belonging to an enterprise will
not constitute a permanent establishment of that enterprise. The
maintenance of a stock of goods belonging to an enterprise solely
for the purpose of storage, display or delivery, or solely for
the purpose of processing by another enterprise will not give
rise to a permanent establishment of the first-mentioned enter­
prise. The maintenance of a fixed place of business solely for
the purchase of goods or merchandise or the collection of infor­
mation for the enterprise, or for activities that have a prepara­
tory or auxiliary character for the enterprise (for example,
advertising (other than by an advertising company), the supplying
of information, or the conduct of scientific activities) will not
constitute a permanent establishment of the enterprise. Finally,
a combination of the foregoing activities will not give rise to a
permanent establishment if the combination results in an overall
activity that is of a preparatory or auxiliary character. This
combination rule differs from that in many recent U.S. treaties,
under which any combination of otherwise excepted activities is
not deemed to give rise to a permanent establishment, without the
additional requirement that the combination, as distinct from
each constituent activity, be preparatory or auxiliary. It is
assumed that if preparatory or auxiliary activities are combined,
the combination generally will also be of a character that is
preparatory or auxiliary. If, however, this is not the case,
under this Convention a permanent establishment may result from a
combination of the activities listed in paragraph 3.

   Paragraph 4

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Supp. No. 6 (1998)

   Paragraphs 4 and 5 specify the circumstances under which an
agent will constitute a permanent establishment of the principal.
Paragraph 4,.subparagraph a) contains the standard rule that a
dependent agent of an enterprise will be deemed to be a permanent
establishment of the enterprise if the agent has and habitually
exercises an authority to conclude contracts in the name of the
enterprise. If, however, the agent's activities are limited to
those activities specified in paragraph 3 that would not consti­
tute a permanent establishment if carried on directly by the
enterprise through a fixed place of business, the agent will not
be a permanent establishment of the enterprise. This Convention
contains an additional test, in subparagraph 4 b), for determin­
ing whether a dependent agent will constitute a permanent estab­
lishment of the principal. Under subparagraph 4 b), which is
not found in the OECD Model or in most U.S. treaties, even if the
agent does not have the authority to conclude contracts in the
name of the enterprise, it may constitute a permanent establish­
ment of the enterprise if certain conditions are met: (1) the
agent maintains a stock of goods or merchandise from which the
agent regularly makes deliveries on behalf of the enterprise; (2)

in addition to the regular delivery, the agent also undertakes
virtually all of the activities connected with the sale, except
for the conclusion of the contract; and (3) it is proved that
this pattern is established to avoid host-State taxation of the
enterprise. Condition (1) is found in the U.N. Model, but its
applicability is significantly narrowed by conditions (2) and

(3).

Paragraph 5

Under paragraph 5, an enterprise will not be deemed to have a permanent establishment in a Contracting State merely because

it carries on business in that State through an independent
agent, including a broker or general commission agent, if the

agent is acting in the ordinary course of its business. Thus,
there are two conditions that must be satisfied: the agent must
be both legally and economically independent of the enterprise,

and the agent must be acting in the ordinary course of its
business in carrying out activities on behalf of the enterprise.

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   Whether the agent and the enterprise are independent is a
factual determination. Among the questions to be considered are
the extent to which the agent operates on the basis of instruc­
tions from the enterprise and whether the agent or the enterprise
bears the business risk inherent in the activities carried on by

the agent on behalf of the enterprise. Furthermore, even an
otherwise independent commission agent would be deemed to be a
dependent agent under paragraph 4 if the agent habitually exer­

cised authority to conclude contracts in the name of the enter­
prise (as descibed above in connection with paragraph 4), because

in such a case the agent would not be acting in the ordinary
course of its trade or business as an independent commission
agent.

   Paragraph 6

Paragraph 6 clarifies that a company that is a resident of a
Contracting State will not be deemed to have a permanent estab­
lishment in the other Contracting State merely because it con­
trols, or is controlled by, a company that is a resident of that
other Contracting State or that carries on business in that other
Contracting State. The determination of whether or not a perma­
nent establishment exists will be made solely on the basis of the
factors described in paragraphs 1 through 5 of the Article.
Whether or not a company is a permanent establishment of a
related company, therefore, is based solely on those factors and
not on the ownership or control relationship.between the compa­

nies.