Uneasy Application of Permanent Establishment -法搜-中国法律信息搜索网

　- the concept of ‘place of effective management’
　- the concept of a permanent establishment (PE);
　- the attribution of profit to a server-PE, and
　- transfer pricing issues.
　
　 The Business Profits TAG would provide their input into the deliberations of Working Party No.1 on Tax Conventions and Related Questions.
　
　(ii) Recent work under taken by OECD
　Following two previous drafts which were released for comments by Working Party No. 1 in October 1999 and March 2000, CFA adopted the changes to the Commentary on the OECD Model Tax Convention concerning the issue of the application of the current definition of permanent establishment in the context of e-commerce on 22 December 2000.The changes draws a distinction between businesses that operate the server (usually ISPs) and those carries on business via website (usually vendors) in that the latter do not have at their disposal the server and the location of the server since the latter’s websites are normally hosted by the first. Therefore, vendors in general will not constitute a PE. The changes also clarify what the preparatory or auxiliary activities would be in e-commerce context. Generally , the provision of communication links between supplier and customer, advertisements for goods or service and gathering market information for the business would be treated as the exceptional activities, unless these activities or combination of these activities amount to an essential and significant part of the business. In addition, an agency PE will also be unlikely to arise.
　
　Now that the threshold question has been settled, at least in respect of the application of the existing rules, attention turns naturally to what profits can be attributed to e-commerce activities that have passed the threshold of Article 5 so that a permanent establishment is held to exist. The Business Profits TAG then attempts to explore the interpretation and application of Article 7 of a PE in digital environment and publishes a discussion paper entitled Attribution of Profit to a Permanent Establishment Involved in Electronic Commerce Transactions for public comments prior to 30 June 2001.Although the discussion deals with only the case of e-retailing model, it performs a factual and functional analysis and distinguishes different variations depending on the nature and scope of functions performed and the number of server PE’s involved. For example, a stand-alone server processes on line transactions with consumers and delivers to them digitized products by means of automated functions without intervention of personnel in the PE. The server-PE thus performs only routine functions and relies on other parts of the enterprise to provide the intangible assets necessary to perform its functions (mostly software, hardware and marketing intangibles). Theses limited functions, under the working hypothesis employed in this report, are comparable to those of a ‘contract service provider’ arrangements which leaves assets and risks with the head office and attributes to the PE only the profit associated with the physical operation of a computer server . As not CUP’s may be available, an arm’s length fee would be determined under the Transfer Pricing Guidelines according to the cost plus method applied to the direct and indirect costs incurred by the provider-PE.Based on this variation, the report also examines other variations which perform more functions or involve more servers (multi-server). The methodology prevails in this report is an analogical application of the OECD Transfer Pricing Guidelines for Multinational Enterprises and Tax Administrations.