Sign up for tax alert emails    GTNU homepage    Tax newsroom    Email document    Print document    Download document

February 9, 2023
2023-5168

PE Watch: Latest developments and trends, February 2023

OECD

OECD releases administrative guidance for Pillar Two

On 2 February 2023, the Organisation for Economic Co-operation and Development released Administrative Guidance (the guidance) for the implementation of the global minimum tax. Among other items, the guidance addresses questions related to Permanent Establishments (PEs). For example, it clarifies that if the Main Entity is considered an Excluded Entity, then all its activities, including those performed by its PEs, are excluded from the Global Anti-Base Erosion (GloBE) Rules.

Another topic addressed is the calculation of the Qualified Domestic Minimum Top-up Tax (QDMTT). Accordingly, a jurisdiction with a taxable branch regime must exclude the income or loss of a foreign PE from the income or loss of the Main Entity when calculating the QDMTT. Further, a QDMTT will not include taxes paid by a Main Entity that is allocable to a PE. The guidance notes that the Inclusive Framework will consider providing further guidance on the allocation of income to PEs under a QDMTT in particular circumstances (e.g., in respect of stateless PEs).

PE case law

India: Court rules that servers do not constitute a PE

On 3 January 2023, the Income Tax Appellate Tribunal (ITAT) of New Delhi ruled on case ITA No. 7354/Del/2017 analyzing whether the provision of online services by a nonresident constitutes a PE in India. In the instant case, the nonresident uses computer servers in the United States to market and provide travel-related products and services to Indian airlines.

The tax authorities alleged that the Indian customers' computer terminals were a crucial part of the nonresident's main ticket booking system and therefore they assess the existence of a PE. However, the ITAT agreed with the order of Commissioner of Income-tax Appeals (CIT(A)) stating that the nonresident did not have a fixed place of business in India as no equipment is installed by the nonresident with the clients.

Other PE developments

United Kingdom: Report on tax implications of hybrid and remote working

On 20 December 2022, the Office of Tax Simplification (OTS) published the report “Hybrid and distance working report: exploring the tax implications of changing working practices.” The OTS gives independent advice to the United Kingdom (UK) Government on simplifying the tax system, to make things easier for taxpayers.

The report focuses on the trend of allowing employees to work temporarily or permanently overseas while still being employed by UK businesses. Businesses mainly expressed concerns about the potential tax implications, such as the creation of a PE. They suggested to provide relief or a "safe list" of jurisdictions may help with short-term stays and asked for clarification on the definition of a home office PE. Businesses also suggested safe-harbor guidance to streamline the compliance implications of transfer pricing.

_________________________________________

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

 
 

The information contained herein is general in nature and is not intended, and should not be construed, as legal, accounting or tax advice or opinion provided by Ernst & Young LLP to the reader. The reader also is cautioned that this material may not be applicable to, or suitable for, the reader's specific circumstances or needs, and may require consideration of non-tax and other tax factors if any action is to be contemplated. The reader should contact his or her Ernst & Young LLP or other tax professional prior to taking any action based upon this information. Ernst & Young LLP assumes no obligation to inform the reader of any changes in tax laws or other factors that could affect the information contained herein.

 

Copyright © 2024, Ernst & Young LLP.

 

All rights reserved. No part of this document may be reproduced, retransmitted or otherwise redistributed in any form or by any means, electronic or mechanical, including by photocopying, facsimile transmission, recording, rekeying, or using any information storage and retrieval system, without written permission from Ernst & Young LLP.

 

Any U.S. tax advice contained herein was not intended or written to be used, and cannot be used, by the recipient for the purpose of avoiding penalties that may be imposed under the Internal Revenue Code or applicable state or local tax law provisions.

 

"EY" refers to the global organisation, and may refer to one or more, of the member firms of Ernst & Young Global Limited, each of which is a separate legal entity. Ernst & Young Global Limited, a UK company limited by guarantee, does not provide services to clients.

 

Privacy  |  Cookies  |  BCR  |  Legal  |  Global Code of Conduct