The permanent establishment (PE) concept is a core element of the global international tax framework. With increasing cross-border business activities resulting from the globalization of the world economy, the PE risk is taking center stage among international tax issues. At the same time, the attribution of profits to PEs becomes more complex due to new business models, ecosystems and integration of operations within a business model. However, the attribution of profits to PEs also gains particular importance for the ramifications that it will have on the Global Anti-Base Erosion (GloBE) rules calculations when applicable.
To address the challenges arising from the digitalization of the economy, some jurisdictions have modified their domestic tax rules in an attempt to levy tax on business arrangements not requiring a physical nexus, including the triggering of a PE when certain services are provided from abroad for the benefit of a person resident in their jurisdiction. Such new concepts and approaches depart from the traditional views of PE.
Further, tax authorities are actively challenging the potential existence of PEs. This in turn, translates into businesses requiring more time and resources to manage their PE risks. According to the 2021 EY International Tax and Transfer Pricing Survey, PE is one of the three top issues most likely to come under scrutiny over the next two years by the tax authorities around the world.
EY's publication, PE Watch: 2021 in review, covers the most relevant PE topics during 2021 and each topic has two sections, except BEPS 2.0 which has one section. The first section provides background information while the second section addresses specific country developments during the relevant year with respect to each topic.
Details and information can be found in the below PDF.
