Possible solutions to the challenges posed by e-commerce on the permanent establishment concept: a South African perspective

Abstract

Electronic commerce (‘e-commerce’) is an essential part of the modern world that people live in. It involves cross border business transactions operating simultaneously. Where a business operates in two different jurisdictions at the same time, it faces challenges when determining to what extent, it becomes liable for taxation in either or both jurisdictions.1 The objective of this research is to examine the evolution of the concept of permanent establishment, the manner in which e-commerce affects this concept, and explores possible mechanisms of imposing tax on cross-border e-commerce transactions. It commences with an analysis of the application of the South African tax jurisdiction over residents and non-residents, in order to establish the extent of its jurisdiction over cross border transactions. It then proceed to provide a perspective on the functioning of e-commerce and the challenges it posed to the current South African taxation system. The research findings indicate that the current Organization for Economic Cooperation and Development (‘OECD’) concept of permanent establishment does not accommodate for the taxation of e-commerce transactions. It concludes with recommendations which can be used by the South African revenue authorities to ensure efficient tax collection on e-commerce transactions.