Abstract

Permanent establishment has been used as a principle or threshold to determine whether a country has taxing rights on the business profits of a non-resident taxpayer. That threshold, however, has raised many questions in the context of e-commerce. Many countries are now concerned of how to determine permanent establishment in an ecommerce environment. Some view that the existing rule is insufficient to cope with e-commerce. This is because the existing tax rules were not designed in the era of ecommerce. Tax authorities are also concerned about the tax revenue loss, as there are no specific tax laws relating to permanent establishment in e-commerce. This study was conducted to solicit the perceptions of tax offices and tax practitioners on the criteria used to tax business profits in an e-commerce environment. This paper discusses how permanent establishment is determined in the conventional and e-commerce environments. The findings indicate that the existing tax threshold concerning permanent establishment is applicable in taxing e-commerce business profit, however, further amendments and changes should be incorporated to cater for e-commerce environment. The subjects also perceived that additional criteria should be included in the existing tax laws on permanent establishment to ensure tax treatment on e-commerce do not leave room for tax loss.

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