PERMANENT ESTABLISHMENT IN DIGITAL BUSINESS
PERMANENT ESTABLISHMENT IN DIGITAL BUSINESS

Summary/Abstract: Background: As to the taxation of a permanent establishment (PE), current tax solutions based on the physical presence of an enterprise in the territory of another country have been developed for traditional enterprises that do not pursue their business digitally, especially on the Internet. However, electronic business is largely based on intangible property, such as algorithms and user data. The taxation of digital business is a global problem that is dealt with by the EU and the OECD, among others. Research purpose: The paper is designed to introduce the relevance and the consequences of the new EU and the OECD proposals for taxation of income resulting from digitalising economy in light of the permanent establishment standards. Methods: The paper analyses legal sources and working materials, in particular of EU Directives and OECD Reports or Statements before and after the BEPS Project. A comparative analysis of tax implications under the current and planned regulations regarding the permanent establishment in digital business has been performed. Conclusions: The OECD Inclusive Framework decided to move away from the problem of digitization in favor of globalization, and away from taxation of the largest technology giants in favor of taxing the biggest and most profitable companies. The PE concept under the 2021 Compromise has taken a significantly simplified form compared to the traditional notion of PE requiring analysis of the physical presence.

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