Operating premises vs. subsidiary branch – whats the difference?
Operating premises derives from tax law and is wider than the concept of the subsidiary branch. As a rule of thumb, every subsidiary branch is an operating premises, but not every operating premises is a subsidiary branch.
Concept of the subsidiary branch
Operating premises are subsidiary branches that, legally speaking, is a dependent part of a main branch. It carries out the same activities as the main company on a long-term basis at its own site and can therefore be seen as commercially independent (see blog post).
Concept of the operating premises
An operating premises is a ‘fixed commercial establishment through which a company’s activities are wholly or partly carried out’ (Art. 5 OECD model convention). Operating premises can be subsidiary branches, commercial offices, manufacturing sites, workshops, sales points, permanent representations and mines (Art. 5 para. 2 of the OECD model).
Preparatory activities and support functions do not necessarily make a fixed commercial establishment an operating premises (Art. 5 para. 4 of the OECD model). The following entities therefore do not constitute operating premises: storage facilities, warehouses, processing plants, procurement plants, information points, advertising points and research premises (Art. 5 para. 4 of the OECD model).
A subsidiary company in another country does not constitute an operating premises of the parent company (Art. 6 para. 7 of the OECD model).
In Switzerland, operating premises are partially tax-liable (Art. 51 para. 1(b) of Switzerland’s Direct Federal Taxation Act [DBG]). This means that, as a minimum, the profits generated in Switzerland will be taxed (Art. 52 para. 2 DBG). Tax law may provide for other taxation in addition to the tax on profit (see blog post).
