ree zone. The opposite situation is also of concern, that is when two tax authorities attempt to tax an activity. Thus, the tax issue is either one of no taxation or one of double taxation. In terms of jurisdiction, it is vital that international treaties provide for relief in the case of double taxation. There is a conflict between the country of origin versus the destination country.
In the situation that tax is deemed to be payable, the issues then arise of;
Determining tax liability
Collecting tax revenue
Discovering taxable transactions
The extraterritorial effect of a nation’s tax laws
International Comity – the taxing State should only apply its law extraterritorially in cases where it is reasonable to do so.
Measurement of profits – which profits of the foreign company are to be taxed by the taxing country
Permanent Establishment
Permanent establishment, in the European context, has been defined in the Daily Mail case and the case of Somafer. In Somafer, it was held that;
‘the concept of branch, agency or other establishment implies a place of business which has the appearance of permanency, such as the extension of a parent body, has a management and is materially equipped to negotiate business with third parties so that the latter, although knowing that there will if necessary be a legal link with the parent body, the head off英语论文网 【http://www.51lunwen.org】ice of which is abroad, do not have to deal directly with such parent body but may transact business at the place of business constituting the extension.’
The OECD has stated that a website is not to be construed as a permanent establishment. A server base may, in some cases, be treated as a permanent establishment, However, the UK and the EU do not consider that a server produces a sufficient nexus to permit the hosting State to tax. OECD Model Law Art 5 – Permanent Establishment is defined as the place where a business is wholly or partially carried on, including an office, branch or place of management.
In certain cases, the permanent establishment rule will not apply;
Permanent Establishment will not be satisfied where the infrastructure relates to the;
Storage, display and delivery of goods
Purchase of goods and collecting of information
Maintenance of goods on behalf of another enterprise
The immoveable property rule. The property is to be taxed by the State where the property is located.
A related problem for companies is the application of the separate accounting and arm’s length principles. These rules provide that each subsidiary is to be treated as a separate entity and thus can be independently taxed. Also, profits are to be calculated as at arm’s length. These principles cause difficulties for multi-national corporations and e-commerce.
International Developments
A number of quest
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