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June 6, 2023

PE Watch | Latest developments and trends, June 2023


BEPS MLI: Viet Nam deposits instrument of ratification of the MLI

On 23 May 2023, Viet Nam deposited its instrument of ratification of the Base Erosion and Profit Shifting (BEPS) Multilateral Instrument (MLI) with the Organisation for Economic Co-operation and Development (OECD). Viet Nam confirmed its preliminary positions regarding the permanent establishment (PE) provisions and chose to apply all of the PE provisions of the MLI, except Article 14 (splitting-up of contracts).

The MLI will enter into force for Viet Nam on 1 September 2023.

PE domestic law

Cambodia: Update to PE definition

On 16 May 2023, Cambodia enacted a new Law on Taxation (Royal Kram No. NS/RKM/0523/004), which compiles all tax legislation in Cambodia into one Law on Taxation, but does not make significant changes to the law. Among other items, the new Law on Taxation updates the PE definition from the existing Tax on Income Prakas, bringing it in line with the Agency PE provision of the 2017 OECD Model Tax Convention. Accordingly, if a person who is acting on behalf of a nonresident habitually concludes contracts or plays a principal role in their conclusion without material modification, the nonresident will be deemed to have a PE in Cambodia.

Qatar: Amendments to the PE definition and attribution of profits to a PE

On 16 May 2023, Qatar published Council of Ministers Decision No. 3 of 2023 (Amended Regulations), modifying the Executive Regulations of the Income Tax Law. Among other items, the Amended Regulations update the PE definition and the method for determining a PE's taxable income.

The PE definition under the Amended Regulations includes a list of preparatory or auxiliary activities that will be deemed not to constitute a PE (i.e., the negative list). Note, however, that even if a nonresident meets the criteria outlined in the negative list, the nonresident entity is still required to register with the General Tax Authority and obtain a tax identification number in Qatar. In addition, the updated PE definition includes an anti-fragmentation clause, an Insurance PE provision and an Agency PE provision in line with the 2017 OECD Model Tax Convention.

Regarding attributing profits to a PE, the Amended Regulations state that a PE should be treated as a separate and independent enterprise. Further, the new regulations include force-of-attraction rules. The Amended Regulations note that a PE may deduct from taxable income any expenses incurred for the purpose of its activity, including general and administrative expenses, whether incurred in Qatar or elsewhere. However, the Amended Regulations also specify certain payments, in certain situations, as neither taxable nor tax deductible when calculating a PE's taxable income in Qatar. These payments include royalties, rights to use patents or other rights, commissions and interest (excluding PEs of foreign banks).

These new rules are effective from 17 May 2023.

See EY Global Tax Alert, Qatar amends Executive Regulations to the Income Tax Law, dated 24 May 2023.

Other PE developments

Saudi Arabia: Circular clarifies Service PE definition

On 17 May 2023, the Zakat, Tax and Customs Authority (ZATCA) published Circular 2303001, providing guidance on the definition of Service PE in the context of Saudi Arabia's tax treaties. According to the Circular, a Service PE will be considered to exist when a nonresident entity provides services to a customer within Saudi Arabia. To determine the existence of a Service PE, the Circular outlines three key tests: (i) the services must be rendered by the nonresident's employee(s), (ii) a physical presence in Saudi Arabia is required, and (iii) this physical presence should exceed the relevant threshold specified in the applicable treaty (typically set at 183 days within any 12-month period).

The ZATCA notes that in instances where a PE is not created, the income that the nonresident generates performing activities for the benefit of a Saudi Arabian resident would not fall within the scope of Saudi Arabian income tax but may fall within the scope of a withholding tax.

Additionally, the Circular includes practical examples to illustrate scenarios in which a Service PE may or may not be established.

See EY Global Tax Alert, Saudi Arabia clarifies interpretation of service-PE provisions in its tax treaties, dated 31 May 2023.

Saudi Arabia: Public consultation to update force-of-attraction rules

On 30 May 2023, the ZATCA released a public consultation that proposes amendments to the Income Tax Law. Among other items, the amendments update the force-of-attraction rules. As part of these rules, if a nonresident, with a PE in Saudi Arabia, earns income from Saudi Arabia but fails to substantiate the reasons for not conducting those activities through a PE in Saudi Arabia, the income attributable to the nonresident should be treated as taxable income in Saudi Arabia.

The consultation will run until 28 June 2023.


For additional information with respect to this Alert, please contact the following:

Ernst & Young Belastingadviseurs LLP, Rotterdam

Ernst & Young Solutions LLP, Singapore

Ernst & Young LLP (United States), Global Tax Desk Network, New York

Published by NTD’s Tax Technical Knowledge Services group; Carolyn Wright, legal editor


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