Flexibility of the permanent establishment concept towards e-commerce as endorsed by the OECD
Date
2020
Authors
Mqadi, Siyanda Freedom
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Abstract
According to article 7 of Organisation for Economic Co-operation and Development (OECD) Model Tax Convention, profits of an enterprise of a contracting state will be taxable only in that state, unless the enterprise carries on business in the other contracting state through a permanent establishment (PE) situated there (OECD 2017: 33). Article 5 of the OECD Model Tax Convention defines a PE as a ‘fixed place of business through which the business of an enterprise is wholly or partly carried on’ (OECD 2017: 31).Current PE rules (source rules) are strongly territorial based (Azam 2007: par 19). Territorial taxation is based on international enterprises being subject to tax on income only in the source jurisdiction (Kobetsky 2011: 35). The challenge of taxing business income without a PE has been exacerbated by the advent of electronic commerce (e-commerce) (Michielse and Thuronyi 2015: 170). E-commerce challenges territorial concepts as e-commerce businesses can be located anywhere and conduct business everywhere (Azam 2007: par 20). The rise of e-commerce has opened source-based principles of taxation for re-examination (Doernberg, Hinnekens, Hellerstein and Li 2001: 169). This research examines the current PE concept as endorsed by the OECD, whether it is flexible enough to handle challenges presented by e-commerce. This research will examine the evolution of the PE concept, how the previously identified e-commerce challenges have been addressed in the current PE concept as endorsed by the OECD, the contribution of the OECD towards the PE concept and lastly to analyse recent court cases on the PE concept regarding e-commerce
Description
A research report submitted to the Faculty of Commerce, Law and Management in partial fulfilment of the requirements for the degree of Master of Commerce specialising in Taxation, University of Witwatersrand, Johannesburg,