SuperWool is a long-established family owned company organized and operated entirely in Islandia. They purchase wool hats from native craftsmen and sell them to tourists visiting Islandia. SuperWool has never sold hats in the United States. However, after returning from a vacation in the U.S., the company’s president determined that such caps would sell very well in the United States’ department stores.
SuperWool management decided to start selling wool hats in the United States. They are considering four possibilities:
(i) Have no representation in the U.S. Sell only to U.S. department store buyers who visit Islandia or other foreign countries where SuperWool has agents. In addition, sell to U.S. buyers who order by phone, fax or the internet.
(ii) Have a SuperWool officer visit the U.S. annually for three or four months to travel throughout the country promoting and selling hats to department stores and accepting orders. SuperWool would have no warehouse, office, or other fixed place of business in the U.S. Hats would be shipped from Islandia directly to the customers.
(iii) Have a permanent sales office, but no warehouse, in the U.S. staffed by SuperWool employees. Hats would be shipped from Islandia directly to the customers.
(iv) SuperWool would not set up its own office in the U.S. but it would retain, under an exclusive contract, an unrelated sales agent that has a U.S. office. The agent’s employees would solicit, negotiate and accept orders for SuperWool blankets in the name of and on behalf of SuperWool.
Discuss whether each of these four scenarios creates a U.S. trade or business. Also discuss whether each of these four scenarios creates a U.S. permanent establishment (assuming there is a treaty between Islandia and the U.S.). Explain why you reached these conclusions.
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