A a fixed form ( PE ) is a fixed place of business that generally generates revenue or value added tax liability in certain jurisdictions. This term is defined in many income tax treaties and in most EU Value Added Tax systems. The tax system in some civil-law countries imposes income tax and value-added tax only if the company maintains the PE in the country concerned. The definition of PE under any tax law or tax treaty may contain special inclusions or exclusions.
Video Permanent establishment
Histori
The concept of permanent establishment emerged in the German Empire after 1845, culminating with the German Tax Act of 1909. Originally the aim was to prevent a double tax between the Prussian municipalities and this was extended throughout the German federation. In 1889, the first bilateral tax treaty, including the concept of permanent establishment, concluded between the Austro-Hungarian Empire and Prussia, marked the first time the concept was used in international tax law. After years of preparatory work, in 1928, the League of Nations developed a model to address the double cross-border taxation and to fight tax evasion. Since then, the extensive network of bilateral tax treaties has been gradually established, primarily through the influence of the OECD Model Tax Convention, where this concept remains in effect.
Maps Permanent establishment
Type
In the OECD Model Tax Convention, basically three types of PE can be interpreted:
- Permanent establishment where business remains (article 5 (1));
- Permanent establishment of construction or project , which is a special part of permanent establishment of permanent establishment, under different conditions (clause 5 (3)); and
- Permanent establishment of agents , through the actions of dependent agents (art 5 (5-6)).
The UN Model Tax Convention, which gives greater consideration to developing countries, adds what is known by the establishment of a service service in article 5 (3) b. Some countries, such as Saudi Arabia, have tried to extend the concept of PE services into virtual services PE.
Under the Basic Erosi and Profit Shift project being developed by OECD and supported by G20, a new nexus based on significant digital presence is being considered in Action 1, aimed at Overcoming the Digital Economic Tax Challenge.
Business place fixed
The starting point for determining whether a permanent establishment is generally a fixed place of business. The definition of permanent establishment in article 5 of the Income Tax Treaty The OECD Model is followed in most income tax agreements.
Comments show that a business place still has three components:
- Fixed refers to links between a business place and a specific geographic point, as well as a degree of sustainability with respect to taxpayers. "" office hotel " may be a permanent place of business for companies that regularly use different offices indoors.In contrast, where there is no commercial coherence, the fact that activity can be carried out within a limited geographic area should not result in the area being considered a fixed business place.
- Business place . This refers to some facilities used by a company to run its business. The place should be at the disposal of the company. The presence of the company in that place does not necessarily mean that it is the company's business place. Facilities do not need an exclusive location, and they do not need to be used exclusively by that company or for that business. However, the facility must be from the taxpayer, not the other unrelated person. Thus, the usual use of customer premises is not generally a place of business.
- Business of the company must be done in whole or in part in the designated place.
What conditions constitute "fixed stance" within the scope of a particular agreement depends on the interpretation of what a particular country does on that term, in the context of the text of the treaty. In accordance with Article 3 of the Vienna Convention on the Law of the Treaty, no person shall be entitled to claim rights under a particular agreement unless permitted by the contracting country. Therefore, if a particular contracting country puts a different meaning to the term 'fixed stance' than what the taxpayer is looking for, the taxpayer will be left with virtually no recovery within the country, other than to seek common ground for the dispute with the state other contracts for the agreement.
Indicative list of permanent establishment
The OECD Model Tax Convention includes a short indicative list of prime facies. However, this is not a permanent permanent form as defined requirements, that is, for a permanent establishment the business remains to be met. The list is as follows:
- Branch
- Warehouse (but see excluded places below)
- A factory
- Mine or place of extraction of natural resources
- Place management
Excluded special places
Many agreements explicitly exclude from the definition of PE places where certain activities are performed. Generally, this exclusion does not apply if activities that are not excluded are exercised in a fixed place of business. Among the excluded activities are:
- Additional activities or preparations
- Use of storage facilities solely for the delivery of goods to customers
- Maintenance of inventory of goods owned by the enterprise solely for the purpose of processing by another company (sometimes referred to as toll processing)
- Purchase or information gathering activity
Other specific terms
Construction or Project PE
Many agreements provide specific rules relating to construction sites. Under the agreement, a building site or a construction or installation project is PE only if it lasts more than a certain period of time. The amount of time varies by agreement.
PE Agent
In addition, dependent agent activity may lead to PE for the principal. Dependent agents may include employees or others under the control of the principal. An enterprise is generally not considered an agent solely on the grounds of ownership of the agent company by the principal. However, the activities of independent agents are generally not linked to the principal.
PE Services
Some agreements assume PE exists for an enterprise of a country that carries out services in another country for more than a certain period of time or for a related company.
BEPS Action 7 and 15
In October 2015, the OECD released its final report on Basic Erosion and Gain Transfer (BEPS) projects. Action 7 is targeted at Preventing the Artificial Avoidance of Permanent Establishment Status and proposing a large number of changes that are set to be included in subsequent versions of the OECD Model Tax Convention. The OECD expects much of this change to apply to existing tax treaties through work under Action 15 on Developing Multilateral Instruments to Modify Bilateral Tax Agreements. A large number of countries are engaged in negotiations that are expected to be completed by the end of 2016.
The final report on Action 7 proposes substantial changes to the definition of PE Agencies and strict requirements for exclusion conditions:
"These changes will ensure that where activities undertaken by an intermediary in a country are intended to result in the conclusion of a regular contract to be undertaken by a foreign company, the enterprise shall be deemed to have a taxable existence in that country unless the mediator perform this activity on an independent business trip.
Changes will also restrict the application of a number of exceptions to the definition of permanent establishment for preparatory or additional activities and will ensure that it is not possible to take advantage of this exemption by fragmentation of a cohesive operating business into several small operations; they will also address situations where exceptions applicable to construction sites are blocked through contracts split between closely related companies. "
References
Source of the article : Wikipedia
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