Permanent Establishment Definition

Definition of Permanent Establishment (“PE”) varies amongst countries. However, in order to create some unity with the international taxing communities, the Organization for Economic Co-operation and Development (“O.E.C.D.”) has developed the Model Treaty so it would set a standard of tax rules which would help the nations to adopt some kind of uniformity. Thus, the O.E.C.D. committee has been able to reach a consensus on the various issues concerning the application of the current definition of permanent establishment in the context of ecommerce. This consensus includes that a web site cannot, in itself, constitute a permanent establishment However, some countries disagree with such definition, because they do not consider that physical presence is a requirement for a permanent establishment to exist in the context of e-commerce.

The following questions have been addressed in this article:

Is it unlikely that much tax revenues depend on the issue of whether or not computer equipment at a given location constitutes a permanent establishment?
Can taxing authorities invoke other existing tax principles to fill the resulting holes in the international tax system? Specifically, can international taxing administrations devise a workable system of residence-based taxation agreeable to both developed and developing nations?
Is there a need or requirement for human intervention for the existence of a permanent establishment?

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