The Research On Application Of Permanent Establishment

During the practice of international taxation, for the avoidance of double taxation, every country, based on the permanent establishment rule, exercises its taxing right to the international business income of the non-resident taxpayer. Two Model Tax Convention, drafted by the Unit Nation(UN) and the Organization for Economic Cooperation and Development(OECD) respectively, have both established the rule of permanent establishment. Provided by the subsection 1, section 5 of both the Models, the essential features, by which the business premise is contributed to a permanent establishment, include: i. a place or facility of business under the control of enterprise; ii. the said place or facility is permanent; iii. the enterprise operates its business through the said place or facility. However, under the development of digital economic and the increasing of international online trading turnover, regarding the taxation on international business income and labor rem UNeration of the non-residence, the countries who insistently take the physical presense, such as permanent agency,place and business representative, established by the non-residence within the territory, as the condition or basis to exercise their taxing power will definitely gradually lose their distribution of the international taxation.OECD, on July, 2013, published the OECD’s Action Plan on Base Erosion and Profit Shifting(BEPS). This document aiming at establishing a series of widely recognized rule of international taxation, providing more certainty and predictability for the taxpayer while protecting the base. The seventh action plan(Preventing the Artificial Avoidance of Permanent Establishment Status), brought up in BEPS, regards the thinking of challenge to the rule of permanent establishment under the digital economic, including the exemption provision to guarantee the cole economic activity shall not benefit from permanent establishment, the judgment on artificial arrangements related to goods and services at same time shall not be used for the avoidance of being permanent establishment. The final report of the action 7 was published on October, 2015. The Report suggested the modification to the definition of "permanent establishment" on the section 5 of the Model Convention of OECD for the prevention of the situation where the foreign companies try to avoid to be permanent establishment by artificial arrangement and strategy planning when they are conducting their business oversea. This article will study, based on OECD’s Report of BEPS, these suggestions which prevent the avoidance by artificial arrangment and analyse the rule of identification of permanent establishment under the digital economic.