The Challenges And Responses Of Digital Economy To The Recognition Of Permanent Establishment

International tax treaty is a written agreement or treaty with legal effect to deal with the tax collection and payment relationship between sovereign states and transnational taxpayers,and to adjust the tax distribution relationship between sovereign states.Its purpose is to avoid international double taxation and transnational tax evasion.The OECD Model Tax Convention on the avoidance of double taxation on income and property,as one of the representative model international tax treaties,allocates the international tax benefits between the source country and the country of residence,and sets the permanent establishment as the basis and connection point for the taxation of transnational enterprises in the source country.Only when the source country constitutes a permanent establishment can the source country take precedence over the country of residence;the resident country levies taxes on the business income of multinational enterprises,and the fixed business place is a traditional and important standard to determine whether it constitutes a permanent establishment.However,with the rapid development of economic globalization and digitalization,the recognition of permanent establishment in international tax treaties faces the following two challenges: firstly,the business activities are artificially divided into several preparatory or auxiliary activities by digital means or methods,which constitutes the exemption of permanent establishment,so it is inevitable to revise the exemption clauses of permanent establishment;secondly,the transnational provision of digitalized products or services leads to the recognition of traditional permanent establishment that usually as the connection point of entities in the system disappear,and the construction of digital permanent establishment rules needs to be solved.In the face of these challenges,the international communities have put forward to different solutions.In 2015,OECD and G20 issued the "prevention of tax base erosion and profit transfer",and proposed to modify the exemption provisions of permanent establishment in its seventh action plan,and then in 2017 revised the corresponding provisions in the 2014 OECD Model Tax Convention,but the above amendments still need to be applied in the tax agreements concluded between countries.The international community has not reached a broad consensus on the establishment of rules for digital permanent institutions.OECD put forward the rules of nexus,including "significant economic presence" and "new nexus",and EU put forward the scheme of "significant digital presence".Both of them abandon the dependence on entity existence in the recognition of permanent establishment,and try to establish a new tax rule that has no entity existence and can reflect the economic association between transnational taxpayers and contracting states.In addition,in order to reduce the uncertainty of permanent establishment identification under the digital economy,some countries have introduced unilateral temporary measures such as withholding tax and digital service tax.Although the above solutions provide some guidance for the development and unification of permanent establishment in international tax treaties in the future,none of them can help China,as the world’s second largest economy in the world,being a big capital input country,a big capital output country,a big digital consumer country and a big digital provider country,to solve the problemof the reform of permanent establishment in foreign tax treaties in the dual identities.This paper argues that the rapid development of digital economy is not only a historical challenge,but also a great opportunity to improve China’s tax treaty network and improve China’s international tax jurisdiction.We should take this opportunity to actively participate in the international tax discussion and cooperation and give the strongest voice in China.One belt,one road,is the most effective way to ensure the stability and certainty of international taxation.At the same time,we can try to gradually establish the rules of digital permanent institutions that are in line with the international standards,but do not levy digital tax and other similar unilateral measures,so as to reduce the possibility of increasing the risk of international double taxation and double non taxation.