This article discusses about concept of PE (Permanent Establishment) in case of E-commerce business transactions. Electronic commerce comprises the electronic sale by online stores of downloadable 'soft merchandise' such as music, e-books, e-newsletters, photos and video recordings, software and documents (direct e-commerce), the electronic ordering of tangible products (indirect e-commerce), online securities transactions as well as the provision of financial or other services. It also includes the subscription to and use of an internet service provider (ISP) or an online service provider (OSP), and has also been held to cover electronic data interchange (EDI), electronic fund transfers (EFT) and all credit and debit card activity. Ecommerce transactions can be 'business-to-business' (B2B) or 'business-to-consumer' (B2C). The principle difficulty with these kinds of transactions is that it is quite a challenge to identify the fixed place of business.
Thus, tax administrations today, throughout the world face the formidable task of protecting their revenue bases without hindering the development of new technologies. The challenges that are being faced by the governments and organizations like the OECD are real and the focus is on how to address them collectively and by way of ensuring international consensus. The allocation of taxing rights must be based on mutually agreed principles and a common understanding of how these principles should be applied. In addition to the need for consensus between governments, a need for cooperation between governments and business has also been identified.
The concept of PE is a fundamental and core aspect of international taxation. Its importance lies in its requirement to determine the right of a country to tax the profits of an enterprise that belongs to a different sovereign jurisdiction. Despite the two conventions and tax legislations in almost every country dealing with this concept, it yet remains elusive and its characterization gives rise to complex issues in international business taxation. Thus, there arises a need to not only clarify the concept but also to harmonize the varied interpretations given to PE worldwide through tax treaties, either by adding and reviewing the wording of Model Conventions such as the OECD, UN, and US versions, or by expanding the commentaries and technical explanations to them on current important matters.Intertax