| Abstract [eng] |
This thesis analyses the issue of the definition of a permanent establishment, examining the current definition of a permanent establishment and the impact of the digital economy on the evolution of this definition. The analysis critically analyses the meaning of permanent establishment as found in EBPO Model Tax Convention. The article analyses whether permanent establishment is sufficiently robust to deal with a virtual permanent establishment. The analysis found that the concept of a permanent establishment falls short of capturing permanent establishments created through digital means as a result of digital transformation. This is because the current permanent establishment definition requires that the entity be physically present in the market country for tax purposes. In the digital age, foreign entities require no physical presence to transact in a market country. Foreign entities transact with customers all over the world on a remote basis. While this may be good for trade purposes, it is argued that this seriously erodes the tax bases of market countries since these foreign entities circumvent paying taxes in market countries where substantial economic activity occurs. The inability to impose a tax on a virtual permanent establishment arguably deprives market countries of substantial revenues. In light of this gap, the article provides instructive proposal on introduction of the concept of significant economic presence, which is necessary for the effective taxation of virtual permanent establishments. |
