Permanent Establishment Risk in a U.S. Medical-Device Launch

A foreign medical-device company can create meaningful U.S. tax exposure without forming a U.S. subsidiary. Where an applicable income-tax treaty is available, the central question is often whether the company conducts business through a U.S. permanent establishment. Where no treaty applies, the company must instead be assessed under the broader domestic rules for engaging in a U.S. trade or business and earning effectively connected income.

Facilities and Operational Use Matter

Permanent-establishment analysis generally considers both fixed places of business and the activities of people acting for the foreign enterprise. A dedicated office, laboratory, repair site, demonstration facility, or other space available to the company may create risk. Inventory maintained solely for storage, display, or delivery may receive limited protection under some treaties, but the precise treaty wording and actual use of the location matter. A depot that also supports order fulfillment, returns, technical service, product evaluation, or other core commercial functions may require a different conclusion.

Personnel and Commercial Authority Shape Risk

People create a separate but related risk. Employees who regularly enter the United States for selling, training, installation, clinical support, demonstrations, or account management can strengthen the connection between the foreign enterprise and a U.S. location. Some treaties also contain special provisions for services performed in the United States.

An independent distributor or service provider is generally less likely to create a permanent establishment when it operates in the ordinary course of its own business, serves multiple principals, and controls its activities. Labels such as “consultant,” “independent contractor,” “U.S. Agent,” or “distributor” do not override the operating facts. Appointment as an FDA U.S. Agent is a regulatory communication role and should not, by itself, be confused with commercial authority to bind the manufacturer.

Contracting Practices Require Close Review

Contract authority is particularly important. Risk increases where a U.S.-based person habitually concludes contracts for the foreign company, accepts orders, commits pricing or commercial terms, or negotiates arrangements that foreign headquarters routinely approves without substantive review. The analysis should compare written authority with actual sales practices, approval workflows, customer communications, and the degree of control exercised by the foreign company.

Treaty Protection Does Not End the Analysis

Treaty eligibility must also be confirmed. U.S. treaties differ, not every country has one, and limitation-on-benefits provisions may restrict access. Even where a treaty prevents U.S. tax on business profits because no permanent establishment exists, a federal return or protective filing may still be advisable or required. State income, franchise, payroll, sales-tax, and registration obligations apply different standards and are not eliminated by the federal treaty result.

Align Operations With the Intended Tax Position

MDD Options helps foreign medical-device companies map the proposed U.S. operating model before launch, including personnel, representation, contracting, inventory, facilities, importing, distribution, and service activities. Working with the company’s tax and legal advisers, we can help define responsibilities and operational controls so that commercial objectives are met without allowing day-to-day practices to drift beyond the intended tax position.