Digital and remote business models let companies serve customers across borders without a traditional physical footprint. That flexibility brings a less visible risk: the creation of a permanent establishment (PE) in a country where the group never intended to be taxable.
How a PE arises in a digital model
A PE can be triggered by a fixed place of business, by dependent agents who habitually conclude contracts, or, increasingly, by the way services are delivered and revenue is earned within a market. Remote employees, regional sales support and locally hosted infrastructure can each contribute to exposure.
- Fixed place PE, an office, server or other fixed location at the group's disposal.
- Agency PE, a person who routinely concludes or negotiates contracts on the group's behalf.
- Service PE, services performed in-country for more than a threshold period.
Profit attribution
Identifying a PE is only the first step. Once one exists, the group must attribute an arm's length profit to it, which requires a functional analysis of the people, assets and risks located in that jurisdiction.
“In digital models, the question is rarely whether activity crosses a border, but whether that activity has quietly created a taxable presence.”
How TPTAX can help
We provide research, training and limited scope advisory support on permanent establishment and cross border tax exposure across Africa and the Middle East (GCC countries). Get in touch to discuss your group's position.