Taxation in a Global Digital Economy

1. S. 162Introduction

The existence of a permanent establishment (PE) is a connecting factor which legitimises the source State to tax income derived by non-resident enterprises. An almost century old provision which required physical presence in the source State is facing serious challenges when it comes to the modern digital businesses which form an important part of the modern economies. These businesses require none or very little physical presence in the market jurisdictions to operate and conduct their affairs.

This thesis discusses typical ways that digital enterprises employ to avoid creating a taxable presence in a form of a PE in a market jurisdiction. It starts by discussing the provisions on ‘auxiliary and preparatory activities’ being an exception to PE status under Article 5(4) of the OECD and UN Model Conventions (MC) as well as the abuse of it by digital companies, with specific reference to the online retail giant Amazon, and BEPS measures by the OECD to combat such abuse. Chapter 3. discusses the provisions on a dependent agent PE as laid down in Article 5(5) of the OECD and UN Model Conventions, including avoidance of dependent agent PE status by IT giants with specific re...