Concept Of Permanent Establishment Research Articles

The New OECD Approach on Profit Allocation: A Step Forward Towards Neutral Treatment of Permanent Establishments and Subsidiaries

One of the vexing questions in tax law is whether or not the legal form should make a difference in taxing companies. This question arises amongst others when companies do business outside their country of residence.Companies may set up a subsidiary. The subsidiary, being a separate legal person, will in most countries be taxed as a resident company in the state of incorporation and/or in the state in which it has its effective management. It will be taxed as if it acts on an arm's length basis with the parent company and other associated companies. In case the taxpayer performs its foreign activities without setting up a subsidiary the income derived from these foreign activities may also be taxed in the country where the activity is performed. Most countries tax non-residents on income derived from sources in their country including income derived from permanent establishments situated in that country. These countries generally use the concept of permanent establishment both in their domestic law and in tax treaties. A permanent establishment generally is defined as a fixed place of business through which the business of an enterprise is wholly or partly carried on. PE-profits are determined on the basis of the separate enterprise theory for allocating profits to permanent establishments: the PE-state taxes the profits which the permanent establishment 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. Important exception is the United States. In its tax treaties the United States uses the PE-concept. However, in its domestic law the United States uses the fixed place of business concept in combination with the "income effectively connected with a trade of business" rule.

TAXING DIGITAL ADVERTISING: A PROPOSAL TO INDONESIA

Tax on digital economy activities has become a widely discussed issue in the world because of the limitation on the permanent establishment concept in anticipating the digital economy's externalities. The failure of OECD countries to reach digital economic taxation agreements also caused these countries to take unilateral measures in securing their respective interests. Indonesia, as a country with considerable digital economy value in the Southeast Asia region, plans to implement the significant economic presence concept to secure its tax revenue that cannot be captured by PE concept in the digital cross-border transaction. However, the implementation of this new nexus could generate new challenges in the Indonesia taxation system. This study seeks to provide alternatives to the Indonesian government regarding the taxable presence and taxation methods on the digital economy, especially digital advertising, by conducting examination and evaluation through current nexuses, the international proposals, and other countries' experience in addressing tax challenges in the digital advertising.

The Nigerian Tax Policy on E-Commerce on Social Media: A Study of E-Informal Sector

Currently e-commerce has developed to be a vital part of business activities and our daily lives. The effects of globalization and swift developments are experienced in information and technology level of e-commerce. Tax administrators in Nigeria are being confronted with myriads of challenges and difficulties adapting to the new information technology, “digitalization”. They aimed at examining the effect of adoption of e-taxation on revenue generation in Nigeria on social media companies operating in Nigeria’s Internet domain. The study adopted a causal research design. This is a design which explores the effect of one variable on another. The study revealed that an element of change in the standard regulations among the tax authority (FIRS) for about 5.221, will give way for benefits of revenue generation within social media companies operating in Nigeria’s Internet domain, which explains that FIRS faces challenges on modalities of taxing online companies and they can do more by implementing policies in consonant with social media companies in Nigeria. The study concludes that the country’s major challenge of e-commerce as it relates to its tax system has been that the laws governing direct taxes are at the moment inadequate and out of date; they are premised on the concept of permanent establishment as defined in the double tax treaties and recommend that efforts should be made to set up a tax intermediation body. This body ought to be relevant for the digital world, utilize Internet Service Providers (ISPs) as a responsible authority for the collection, calculation and payment of electronic tax.

Review of Changes in the Concept of Permanent Establishment and Adoption of Diverted Profits Tax under the Digital Economy

Review of Changes in the Concept of Permanent Establishment and Adoption of Diverted Profits Tax under the Digital Economy

The Concepts of Legal Status of the Permanent Establishment in the Era of Digital Economy

The purpose of the article is to identify the key features of the proposals to modify the concept of permanent establishment in digital economy, as well as their differences from the traditional concept of permanent establishment. The subject of the study is a comparative analysis of the concepts of digital presence, aimed at finding new factors for the distribution of tax revenues between the states in which digital enterprises operate. The development of the digital economy necessitates the revision of traditional approaches to the taxation of permanent establishment in the doctrine of tax law and in tax legislation. The article considers doctrinal approaches to the concept of permanent establishment in the digital economy, as well as the proposals of the OECD and the European Commission. The core of the debate is the question of whether the classical concept of permanent establishment remains a basis for source taxation for multinational digital enterprises. A comparative analysis of international and European practice shows that the concept of permanent establishment is based on the minimum level of presence of a non-resident in the country required for taxation. This is due to the fact that the main feature of the functioning of digital enterprises, important for tax law, is the absence of the need for their physical presence in the state

Permanent Establishments and BEPS Action 7: Perspectives in Evolution

This article suggests that the judicial reasoning adopted within judicial trends developed at national level has been used in shaping evolving perspectives about the concept of permanent establishment adopted in the OECD Model. The article strives to achieve fuller comprehension of the issues raised by the Commentary in 2017, addresses different perspectives which can be adopted about preparatory/auxiliary activities that might prove useful in understanding the anti-fragmentation rule now introduced in Article 5(4.1) of the OECD Model and then focuses on the concept of the agency permanent establishment ‘PE’ in light of the functional analysis developed by the OECD, with particular attention to the concrete use of the concept of ‘authority to conclude contracts’ within the functional approach now adopted by the OECD Model, particularly with regard to commissionaire strictures.

New Trends in the Definition of Permanent Establishment: The Netherlands

This paper elaborates on current and emerging issues involving the operation of the concept of permanent establishment (PE) in the national tax system and double tax treaty system of the Netherlands. The paper was written as a contribution (country report) to the seminar “New Trends in the Definition of Permanent Establishment”, organized by the Faculty of Economics and Law of the Universita Cattolica Del Sacro Cuore under the aegis of the OECD and the Italian Council of Ministers. The seminar was held in Milan, Italy, on 26 November 2018. Topics addressed in the paper include: • The operation of the PE concept in the national tax system and double tax treaty system • Tax treaty practices and departures from the OECD Model • Signing of the Multilateral Instrument and reservations made and options chosen • Ongoing developments • Taxation of the digital economy

The concept of permanent establishment in tax law in a digital economy

The concept of permanent establishment in tax law in a digital economy

Designing a 21st Century Taxing Threshold: Some International Implications of South Dakota vs. Wayfair

On June 21, 2018, the US Supreme Court decided South Dakota vs. Wayfair. It overruled its previous precedents to hold that US states can require remote sellers to collect sales tax when they ship items to in-state purchasers. This decision has some implications for the EU’s current struggle with taxing the digital economy, as well as for the broader international effort to update the international tax rules for the 21st century. Specifically, the decision bolsters the argument for dispensing with the 19th century permanent establishment concept.

A Preliminary Assessment of the EU Proposal on Significant Digital Presence: A Brave Attempt that Requires and Deserves Further Analysis

The present book chapter seeks to analyze the content of the proposal for Directive launched by the European Commission in March 21st 2018 on the new threshold on significant digital presence that is expected to complement the current permanent establishment concept. It aims to accomplish the following three objectives. Firstly, identify the alleged policy objectives underlying the proposal and further analyze whether it effectively serves to accomplish such objectives. Secondly, analyze the suggested rule so as to anticipate the risks that may arise if implemented in its current form (from the perspective of its interpretation, administration and auditing, inter alia). Thirdly, put forward a number of suggestions that may help mitigate the aforementioned risks or else improve the proposal in some other ways.

Fixed Establishments in European VAT - BEPS's Side Effects

The focus in the reports of the OECD in its Base Erosion and Profit Shifting (BEPS) project is direct taxation. Still, the effects BEPS will have on indirect taxes must not be underestimated. In this article the author addresses the effects that the BEPS reports and developments will have on the concept of fixed establishment for indirect taxes. On the one hand, she discusses the changes in the concept of permanent establishment (PE) and how they might affect the interpretation of the concept of fixed establishment (FE) for VAT purposes. On the other hand, she discusses whether or not the issues addressed in BEPS for PEs may be required to address for European VAT in a similar manner for FEs.

Fixed Establishments in European Value Added Tax: Base Erosion and Profit Shifting’s Side Effects?

The focus in the Organisation for Economic Co-operation and Development (OECD) reports in the Base Erosion and Profit Shifting (BEPS) project is on direct taxation. Still, the effects BEPS will have on indirect taxes should not be underestimated. In this article the author addresses the effects the BEPS reports and developments will have on the concept of fixed establishment (FE) for indirect taxes. She addresses the changes in the concept of permanent establishment (PE) and how these may affect the interpretation of the concept of FE for Value Added Tax (VAT) purposes. On top of that, she discusses whether or not the issues addressed in BEPS for PEs need to be examined in a similar manner for FEs in European VAT.

Spanish

The concept of permanent establishment is a fundamental part of the tax system in establishing criteria for the attribution of income to a non-resident tax. This concept, traditionally, is found within the Agreements of Double Taxation; However, some countries, such as Colombia, have adopted it in their domestic legislation. Within this concept, it is contemplated a series of activities that - although developed in a country, in a physical and fixed way - do not form the permanent establishment; Consequently, no tax consequences are derived thereof, and are not subject to the payment of business income attributed to him. In the specific case, a reflection was made of the actions that a foreign company can carry out in Colombia that carries out storage activities for the international distribution of goods, through a private deposit and if these can be considered as forming the permanent establishment In accordance with internal regulations and their respective tax consequences. This article concludes by studying the fiscal effects of the private deposit activity for the international distribution of godos against the permanent establishment; In addition, defining the criterion according to which these merchandise storage activities for international distribution in Colombia can be considered to constitute the permanent establishment or when they are considered auxiliary to preparatory, excluding the fiscal consequences associated with the concept. ,

The Concept of ‘Permanent Establishment’ at the Spanish Courts: Special Reference to the Roche and Dell Cases

An accurate definition of the concept of permanent establishment is crucial to the application of the distributive rules provided by the Double Taxation Treaty, particularly, on business profits. In Spain, the cases of Roche and Dell have been very much talked about since the decisions of the Courts brought about a construction of the figure of permanent establishment far from the prevailing orthodox approach to the Commentaries of the Organization for Economic Co-operation and Development Model Tax Convention. The purpose of this broad interpretation of the concept of permanent establishment seems, then, clear: to avoid, with varying degrees of success, that multinational companies carrying on sizable business activity in Spain fail to pay taxes by means of a fabricated business structure scheme. This article shall, therefore, analyse this concept in the light of the Court’s decisions in the above mentioned cases.

Permanent Establishment Concept – An Indian Perspective

The authors examine the basic permanent establishment concept before analysing relevant case laws in order to provide the state of play in India today.

The Tax Treatment of Permanent Establishments

In an article published in European Taxation 4 (2014), the author outlined the differences between the permanent establishment concept under Luxembourg domestic law and that applicable for tax treaty purposes. This article builds on this discussion, focusing specifically on the tax treatment of permanent establishments under Luxembourg tax law and applicable tax treaties.

The Permanent Establishment Concept In Double Tax Agreements Between Developed And Developing Countries: Canada/South Africa As A Case In Point

In this era of globalisation, developing countries have resorted to double tax agreements in order to attract foreign direct investment. The extent to which a countrys tax treaty policy favours developing countries or not depends upon the extent to which the country is prepared to adopt provisions from the UN model tax convention as opposed to the OECD model. Developing countries in particular should carefully consider the design of their tax treaties so as to effectively combat tax avoidance, without sacrificing foreign direct investment. To this end, the Canada/South Africa tax treaty is compared and contrasted with these two models. The concept of permanent establishment is reviewed in this context. It was found that the Canada/South Africa tax treaty is overwhelmingly based on the OECD model. This could indicate that South Africa has a deliberate tax treaty policy of ceding taxing rights to other countries. Thus, developing countries are seemingly unable or unwilling to make use of the UN model so as to retain greater source taxation. A number of recommendations are made to broaden the scope for the source taxation of business income in the developing country.

Implication of Business Connection and Permanent Establishment

The concept of permanent establishment ("PE") has gained considerable importance with the growing trend of globalization. The concept of a PE is important for several Articles of the Convention and the concept or its cognate, also appears in the domestic laws of some countries. For example, in India we have the concept of ‘business connection’ ("BC").BC is the Indian equivalent of PE. It is much wider in connotation and has been very effectively used by the revenue authorities to tax the income of non-residents in India. Despite being referred to in the Income Tax Act, 1961 ("ITA"), the term was not defined till the Finance Act, 2003 inserted a somewhat cryptic explanation to Section 9 of the Indian Income Tax Act, 1961. This paper is an attempt to understand the concept of business connection and permanent establishment and its implications.

Taxation of the Digital Economy: French Reflections

In this note, the author highlights the challenges of taxing the digital economy, in particular the fact that the permanent establishment concept has not been adapted to address this new form of business activity. After outlining international efforts to fill the gap, the author describes unilateral measures that have been proposed by France.

Permanent Establishments and the Mining Industry – A Roadmap to the Taxation of Resource-Based Activities under Tax Treaties

The mining industry typically involves foreign expertise and personnel, and the taxation of the business profits generated is a heavily debated issue. Where there is a tax treaty in place, the right of the country to tax business profits sourced within its borders is further compounded by whether or not the foreign investor has a permanent establishment in that country. The permanent establishment concept is therefore central to the taxation rights of the country where the mining activity is being undertaken.