Alinea 91 Parket bij de Hoge Raad 23 november 2007

Under the third condition, if the employer has in the State in which the employment is exercised a permanent establishment, the exemption is given only on condition that the remuneration is not borne by that permanent establishment. The phrase 'borne by' must be interpreted in the light of the underlying purpose of subparagraph 2c) of the Article, which is to ensure that the exception provided for in paragraph 2 does not apply to remuneration that could give rise to a deduction having regard to the principles of Article 7 and the nature of the renumeration, in computing the profits of a permanent establishment situates in the State in which the employment is exercised. In this regard, it must be noted that the fact that the employer has, or has not, actually claimed a deduction for the remuneration in computing the profits attributable to the permanent establishment is not necessarily conclusive since the proper test is whether any deduction otherwise available for that remuneration would be allocated to the permanent establishment. That test would be met, for instance, even if no amount were actually deducted as a result of the permanent establishment being exempt from tax in the source country or of the employer simply deciding not to claim a deduction to which he was entitled. The test would also be met where the remuneration is not deductible merely because of its nature (e.g. where the State takes the view that the issuing of shares pursuant to an employee stock-option does not give rise to a deduction) rather than because it should not be allowed to the permanent establishment.(14)

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