The Impact And Response Of The Digital Economy On The Legal Recognition Standards Of Permanent Establishment

The business income of an enterprise in a cross-border business activity can be taxed by both the country of residence and the country of origin according to their respective jurisdictions.This situation is called international double taxation.In order to ensure that the collection of income tax does not affect the positive development of international trade business,the international community will take into account the positions of the country of origin and the country of residence when solving such double taxation problems,and the country of origin will prioritize taxation with restrictions,The limiting condition is a permanent establishment.Therefore,the connotation and extension of the legal recognition standards for permanent institutions will directly affect the division of tax benefits between the source country and the resident country.In the previous economic context where offline transactions were the main focus,the traditional recognition criteria for permanent establishment based on the principle of physical existence were able to allocate most international tax jurisdiction.However,the digital economy based on digital cyberspace posed a challenge to the traditional recognition criteria for permanent establishment.The dependent elements for creating commercial value in the digital economy are different from traditional economies,and its value comes more from intangible assets and user participation,Causing a mismatch between the tax paying location and the value creation location.In this context,firstly,it will lead to the complete completion of cross-border business activities in the network without relying on entities,and the identification criteria for the existence of permanent institutions can no longer adapt to the current situation of difficulties in international tax jurisdiction allocation under the booming digital economy;Secondly,transactions of virtual goods can be directly completed online,but physical items still need to be traded offline after signing contracts online.Therefore,the position of auxiliary reserve businesses in the enterprise value chain is gradually increasing,and some have become important links for companies to obtain sales profits.For such auxiliary activities that have already begun to generate value in business activities,the permanent establishment exemption rule can no longer be applied.This article clarifies the traditional criteria for identifying permanent establishment and the characteristics of the digital economy,analyzes the irreconcilable differences between the two,takes the OECD action plan report on permanent establishment issues as the theoretical origin,and takes alternative solutions made by other countries to address the tax difficulties of digital enterprises and the failure of permanent establishment principles as the practical basis.It analyzes the advantages and disadvantages of various measures,and fills the gap in China’s tax law system based on existing theories and practices,And explore the optimal solution to the legal recognition standards for permanent institutions.