Article 7 Business profits

The profits of an enterprise of one of the States shall be taxable only in that State unless the enterprise carries on business in the other State through a permanent establishment situated therein. If the enterprise carries on business as aforesaid, the profits of the enterprise may be taxed in the other State but only so much of them as is attributable to that permanent establishment.

Subject to the provisions of paragraph 3 of this Article, where an enterprise of one of the States carries on business in the other State through a permanent establishment situated therein, there shall in each State be attributed to that permanent establishment the profits which it might be expected to make if it were a distinct and separate enterprise engaged in the same or similar activities under the same or similar conditions and dealing wholly independently with the enterprise of which it is a permanent establishment.

In the determination of the profits of a permanent establishment, there shall be allowed as deductions expenses which are incurred for the purposes of the permanent establishment including executive and general administrative expenses so incurred, whether in the State in which the permanent establishment is situated or elsewhere.

The profits to be attributed to a permanent establishment shall be determined on the basis of separate business books kept by the permanent establishment. If such business books do not constitute an adequate basis for the purpose of determining the profits of the permanent establishment, then such profits may be determined on the basis of an apportionment of the total profits of the enterprise to its various parts; the method of apportionment adopted shall, however, be such, that the result shall be in accordance with the principles embodied in this Article.

If necessary the competent authorities of the States shall endeavour to agree on the method for apportioning the profits of the enterprise.

No profits shall be attributed to a permanent establishment by reason of the mere purchase by that permanent establishment of goods or merchandise for the enterprise.

For the purposes of the preceding paragraphs of this Article, the profits to be attributed to the permanent establishment shall be determined by the same method year by year unless there is good and sufficient reason to the contrary.

Where profits include items of income which are dealt with separately in other Articles of this Convention, then the provisions of those Articles shall not be affected by the provisions of this Article.

The profits derived in Yugoslavia by a resident of the Netherlands in respect of his participation in joint business operations with a Yugoslav enterprise may be taxed in Yugoslavia. The profits shall be determined in accordance with the principles laid down in paragraphs 2 to 7 of this Article.