Research On The Determination Of Permanent Establishment In Transnational E - Commerce

In traditional international trade, the profits of an enterprise of a Contracting State shall be taxable only in that State unless the enterprise carries on business in the other Contracting State through a permanent establishment situated therein. If the enterprise carries on business as aforesaid, the profits of the enterprise may be taxed in the other State but only so much of them as attributable to that permanent establishment. Permanent establishment is an important principal in the international tax system. It’s also a main way to respect the tax jurisdiction of the state of source. However, with the development of science and technology, e-commerce began to play an important role in international trade. In traditional international trade, the concept of permanent establishment is based on physical boundaries. So physical presence is one of the most important standard of judging a permanent establishment. Digitalization and virtualization is two characteristic of e-commerce, so as the international trade through the e-commerce. In these transactions, place of business, where the transactions took place, even the goods themselves are only exist on the Internet, which makes judging a permanent establishment much harder than ever before.According to the practice of most countries, the concept of the permanent establishment put forward by the OECD is accepted widely. Different countries just make individual adjustments in the principle of maintaining the standing body, which make a little change. On the contrary, academic point of view is full of creativity. Arthur J. Cordell and Luc Soete suggested that add a new tax "bit tax" for international trade which accomplished through e-commerce. Richard L. Doernberg used withholding tax on e-commerce to ensure tax benefit due to the state of source. Luc Hinnekens and Arvid A Skaar put forward a new concept "virtual permanent establishment" instead of the traditional permanent establishment, Arthur J. Cockfield and Reuven S. Avi-Yonah proposed that when it’s hard to judging if there was a permanent establishment, economic presence should take the place of physical presence, which will become a new standard of judging a permanent establishment.Considering the developing trend of the modern international trade, Arthur J. Cockfield and Reuven S. Avi-Yonah’ view is more practical. In practice, firstly, the state signed the tax treaty, Then the taxation authority in one state could intercept encryption packet which may contain transaction information from the other Contracting State’s e-commerce site through the technical means. Once total intercept packets reach the standard set in the tax treaty, the taxation authority can require the other Contracting State provide the site’s sales accounts to judge if there was a permanent establishment. Although this approach still have some problems, but can yet be regarded as a new direction.This paper aims at offering an advice for reforming the concept of the permanent establishment in the digital age. This paper uses the method of empirical analysis, conclude some state’s practice in judging a permanent establishment in e-commerce, for example, the United States, Germany, France, India and Hong Kong. The second section introducing different kinds of views for reforming the permanent establishment, and discuss the advantages and disadvantages of these views. In a combination of these, the last section discussed the mechanism of economic presence, and introduced the prospects for its implementation in China.