PE domestic law

Australia's Pillar Two legislation clarifies the treatment of a Permanent Establishment

On 4 July 2024, the Australian Government introduced legislation to Parliament to implement Australia's adoption of Pillar Two. This followed a public consultation on exposure drafts (EDs) released in March 2024. After the EDs were published, the primary legislation underwent a brief public consultation process, which concluded in April 2024. Based on feedback from that consultation and additional work by the Treasury, certain changes were made to the Pillar Two legislation.

Among these changes, the treatment of a Permanent Establishment (PE) has been further clarified. For example, if the Main Entity in respect of a PE is a joint venture (JV) or a JV subsidiary, then any PEs of the Main Entity are considered JV subsidiaries of the JV. Also, if the Main Entity is an Excluded Entity, a PE in respect of that Main Entity is deemed to be an Excluded Entity.

See EY Global Tax Alert, Australian 15% global and domestic minimum taxes law introduced into Parliament, dated 11 July 2024.

Other PE developments

UAE releases guidance on exemption for foreign PEs

On 31 July 2024, the United Arab Emirates (UAE) issued the Corporate Tax Guide "Determination of Taxable Income." This Corporate Tax Guide includes a section on exemptions for foreign PEs. According to the guide, a Resident Person in the UAE can elect to exempt from corporate tax in the UAE income and associated expenses from foreign PEs, provided certain conditions are met. These conditions include not considering losses from any foreign PE and ensuring that the income and associated expenses are at arm's length.

The Corporate Tax Guide notes that the foreign PE must be treated as separate and independent enterprise and any transactions between the head office and the PE must be at market value.

Additionally, the Corporate Tax Guide requires that the income, expenses and losses of the foreign PE be subject to corporate tax, or a similar tax, at a rate of at least 9%.

Lastly, if a Resident Person has used a tax loss incurred in their foreign PE, that tax loss must be fully offset by the taxable income from the foreign PE in a subsequent tax period before the Resident Person can elect to apply the foreign-PE exemption.