OECDOECD

Model Tax Convention on Model Tax Convention on Income and on CapitalIncome and on Capital

For the purpose of eliminating double taxation, the Convention establishes twocategories of rules:

1.1. residence – based taxationresidence – based taxation

2.2. source – based taxationsource – based taxation

Permanent establishment in the Permanent establishment in the electronic commerceelectronic commerce

1.1. Server (OECD, Germany, Poland, Sweden, Server (OECD, Germany, Poland, Sweden, Netherlands)Netherlands)

2.2. Web-site (Australia, Spain, Potugal)Web-site (Australia, Spain, Potugal)

3.3. No permanent establishment institute No permanent establishment institute (Ireland, United Kingdom)(Ireland, United Kingdom)

4.4. Virtual permanent establishment (India)Virtual permanent establishment (India)

Concept of permanent establishmentConcept of permanent establishment

Permanent establishmentPermanent establishment means a fixed place of business through which the business of an enterprise is wholly or partly carried on

The term "permanent establishment" includes especially:

a) a place of management;b) a branch;c) an office;d) a factory;e) a workshop, andf) a mine, an oil or gas well, a quarry or any other

place of extraction of natural resources.

Tests for identification of Tests for identification of permanent establishmentpermanent establishment

1. Test of activities2. Test of representation3. Test of property:

- the location test - the place of business test

the term “permanentestablishment” shall be deemed not to include

a) the use of facilities solely for the purpose of storage, display or delivery of goods or merchandise belonging to the enterprise;

b) the maintenance of a stock of goods or merchandise belonging to the enterprise solely for the purpose of storage, display or delivery;

c) the maintenance of a stock of goods or merchandise belonging to the enterprise solely for the purpose of processing by another enterprise;

d) the maintenance of a fixed place of business solely for the purpose of purchasing goods or merchandise or of collecting information, for the enterprise;

e) the maintenance of a fixed place of business solely for the purpose of carrying on, for the enterprise, any other activity of a preparatory or auxiliary character;

f) the maintenance of a fixed place of business solely for any combination of activities mentioned in subparagraphs a) to e), provided that the overall activity of the fixed place of business resulting from this combination is of a preparatory or auxiliary character.

Examples of activities which would generally be regarded as preparatory or auxiliary

include:

1. Providing a communications link – much like a telephone line – between suppliers and customers

2. Advertising of goods or services3. Relaying information through a mirror

server for security and efficiency purposes

4. Gathering market data for the enterprise5. Supplying information

The location test

Permanent (circus, 6-12 month)

Stationary (two cases; IceCube)

Test of representation

Persons may be either individuals or companies.

It would not have been in the interest of international economic relations

Person has sufficient authority to bind the enterprise’s participation in the business activity in the State concerned

Persons makes use of this authority repeatedly and not merely in isolated cases.