Avoidance of the Permanent Establishment by the Digital Economy and Tax Cooperation as its Solution

Authors

Keywords:

Data collection, tax avoidance, permanent establishment, tax cooperation, Global Tax Governance, International Tax Law

Abstract

This article analyses the obsolescence of the concept of permanent establishment in the context of the growth of the digital economy.

More precisely, we will see how the quality of permanent establishment is eluded in the data collection trade. The legal vacuum of this new type of business is a problem, as is its international dimension.

Therefore, we will examine the proposed solution of virtual permanent establishment.

In a second part of this article, we will broaden the scope of reflection, considering that tax cooperation must be the means and the solution to counterbalance the structural flaws of the permanent establishment.

We will define the concept in depth to consider how the development of international law and global governance in tax matters can and should be the key to reform international taxation

Author Biography

Nathan Godts Hanssens, University of Barcelona

Nathan Godts Hanssens

PhD candidate in international tax law at the University of Barcelona. He is also a Chartered Tax Accountant and Advisor in Spain and Belgium, his country of origin. He studied international tax law and European law and specializes in international taxation and asset mobility, such as taxation of non-residents, international succession and tax optimization. Email: ngodtsha20@alumnes.ub.edu

References

ALONSO J. A., Cooperación fiscal internacional, Economistas sin fronteras, Financiación del desarrollo y agenda post-2015, Dossieres EsF n° 17, 2015

ANDRÉS AUCEJO E. (dir.), International Administrative Cooperation in Fiscal Matter and International Tax Governance, Thomson Reuters, 2018a

ANDRÉS AUCEJO E., “La cláusula de intercambio de información tributaria según el Convenio bilateral Hispano-Brasileño para evitar la doble imposición y prevenir la evasión fiscal en materia de impuestos sobre la renta” in Impuestos: Revista de doctrina, legislación y jurisprudencia, Año nº 27, nº 15-16, 2011

ANDRÉS AUCEJO E., “Sobre la potestad reglamentaria para dictar normas técnicas de desarrollo en materia contable” in Crónica Tributaria, n° 114, 2013

ANDRÉS AUCEJO E., “Towards an International Code for administrative cooperation in tax matter and international tax governance” in Derecho del Estado n. º 40, Universidad Externado de Colombia, enero-junio de 2018b

ANDRÉS AUCEJO E., AKAMBA M., NICOLI M., OWENS J., “General Agreement on International Tax Cooperation, Trade and Global Tax Governance: A Proposal” in Review of International & European Economic Law vol. 1 n° 1, February 2022

ANDRÉS AUCEJO E., OLESTI RAYO A., Global Tax Governance : Taxation on Digital Economy, Transfer Pricing and Litigation in Tax Matters (MAPs+ADR). Tax Policies for Global Sustainability. Ongoing U.N. 2030 (SDG) and Addis Ababa Agendas, Thomson Reuters, 2021

AUGAGNEUR L-M., “Vers des nouveaux paradigmes du droit dans l’économie numérique” in Dalloz, July-September 2015

AVI-YONAH R., XU H., Evaluating BEPS, University of Chicago Public Law Research Paper, n° 493, 15 de enero de 2016

BARNARD C., The Substantive Law of the EU: The Four Freedoms, Oxford University Press, 4 Ed., 2013

BELLEMARE J., “Evolution of the permanent establishment concept” in Canadian Tax Journal, 65(3), 2019

BERTHET K., L'évolution de la lutte contre les paradis fiscaux : Europe, États-Unis, Larcier, 2015

BIRD R.M., “Are global taxes feasible?” in Int Tax Public Finance 25, 2018

BOULANGER E., “La fiscalité de l’économie numérique, imposition et facturation” in Gazette du Palais, July-Augustus 2003

BRADLEY I., BRIGHT J., “State sovereignty and the multilateral instrument” in Canadian Tax Journal 64(2), 2016

CAUSSADE T., La stratégie fiscale de l'entreprise : entre optimisation et fraude, 2017, Université de Toulouse

CHAYES A., HANDLER CHAYES A., The New Sovereignty: Compliance with International Regulatory Agreements, Cambridge MA, London: Harvard University Press, 1995

CHECA GONZÁLEZ C., “Measures and methods to avoid international double taxation” in Yearbook of the Faculty of Law University of Extremadura (AFDUE), 5, 1987

CHRISTIANS A., “BEPS and the New International Tax Order” in 2016 BYU L. Rev. 1603, 2016

COCKFIELD A. J., “Reforming the Permanent Establishment Principle through a Quantitative Economic Presence Test” in Canadian Business Law Journal, vol. 38, no. 3, June 2003

COLLIN P., COLIN N., Mission d’expertise sur la fiscalité de l’économie numérique : Rapport au Ministre de l’économie et des finances, au Ministre du redressement productif, au Ministre délégué chargé du budget et à la Ministre déléguée chargée des petites et moyennes entreprises, de l’innovation et de l’économie numérique, 2013

DAGAN T., “The Costs of International Tax Cooperation” in BENVENISTI E., NOLTE G., The Welfare State, Globalization, and International Law. Springer

DEBLOCK C., RIOUX M., “L'impossible coopération fiscale internationale” in Ethique publique vol. 10 n° 1, 2008

DEVEREUX M. P., VELLA J., Are we heading towards a corporate tax system fit for the 21st century?, Oxford University Centre for Business Taxation, 2014

DICKINSON B., “Flux financiers illicites et développement” in Revue d’économie du développement 2014/2, vol. 22, 2014

DOUENIAS S., Mélanges Pascale Minne : Fiscalité internationale et patrimoniale, Bruylant, 2017

EUROPEAN COMMISSION, Commission Staff Working Document on the free flow of data and emerging issues of the European data economy: Accompanying the document Communication Building a European data economy, SWD (2017) 2 final, 10th January of 2017

EUROPEAN COMMISSION, Proposal directive laying down rules relating to the corporate taxation of a significant digital presence, COM/2018/0147 final - 2018/072 (CNS)

EUROPEAN COMMISSION, Proposal directive laying down rules relating to the corporate taxation of a significant digital presence, art. 5 5. a) and b)

European Commission, Proposal for a Directive of the on certain aspects concerning contracts for the supply of digital content, cons. 13f

EUROPEAN COMMISSION, Working Document on Impact Assessment Accompanying the document Proposal for a Council Directive laying down rules relating to the corporate taxation of a significant digital presence and Proposal for a Council Directive on the common system of a digital services tax on revenues resulting from the provision of certain digital services SWD (2018) 81 final, 2018

EUROPEAN PARLIAMENT, Tax Challenges in the Digital Economy, 2016

FAÚNDEZ UGALDE A., “El problema del concepto existente de establecimiento permanente contenido en los convenios internacionales de doble imposición que enfrentan los nuevos retos fiscales en la economía digital” in Revista Chilena de Derecho y Tecnología, vol. 7 n° 1, 2018

FITZGERALD V., International Tax Cooperation and Innovative Development Finance, DESA Working Paper No. 123 ST/ESA/2012/DWP/123, 2012

GARCÍA PRATS F. A., “Mutual assistance in tax collection” in Tax Chronicle nº 101, Universitat de València, 2001

GARCÍA PRATS F. A., Exchange of information, money laundering and the fight against tax fraud, Institute of Fiscal Studies, 2014

GARCIMARTÍN C., Fiscalidad y desarrollo, Colegio de Economistas de Madrid, Desarrollo y cooperación: nuevas tendencias, n° 129, 2011

GODIN M., HINDRIKS J., A Review of critical issues on tax design and tax administration in a global economy and developing countries in BEFIND Working Paper n°7, junio de 2015

HAKELBERG L., “Coercion in international tax cooperation: identifying the prerequisites for sanction threats by a great power” in Review of International Political Economy Volume 23, 2016 - Issue 3

IFA, Reconstructing the treaty network : Cahiers de droit fiscal international, vol. 105a, 2020

IMF, OECD, WORLD BANK, Developing the International Dialogue on Taxation : A Joint Proposal , 13 de marzo de 2002

INSULZA J.M., Ensayos sobre política exterior, Chile Editorial Los Andes, Santiago de Chile, 1998

JACQUEMIN H., “Le big data à l'épreuve des pratiques du marché et de la protection du consommateur” in Revue du droit des technologies de l’information No. 70, 2018

JESTIN K., Harmful Mutual Legal Assistance in Tax Matters Recent Trends and Challenge Ahead, 2008

JOHNSON A. R., NIRENSTEIN L., WELLS S. E., “Reciprocal Enforcement of Tax Claims Through Tax Treaties” in The Tax Lawyer vol. 33 n°. 2, 1979

KAITIAN G., XIAO S., The Chinese Digital Economy, Palgrave Macmillan, 2016

KOCH D-J., SCHULPEN L., “Introduction to the special issue 'unintended effects of international cooperation” in Evaluation and Program Planning 68, 2018

LAVIN T., WYATT J. N., “Concept of permanent establishment” in Revue Juridique Themis, 4(2), 1969

LEGWAILA T., “Permanent Establishment on the Furnishing of Services” in Journal of South African Law 2016, n° 4, 2016

LESAGE D., “Global Taxation Governance after the 2002 UN Monterrey Conference” in Oxford Development Studies, 36:3, 2008

LESAGE D., MCNAIR D., VERMEIREN M., “From Monterrey to Doha: Taxation and Financing for Development” in Development Policy Review, 2010, 28 (2)

LI J., “Tax Sovereignty and International Tax Reform: The Author's Response” in Canadian Tax Journal 52, n° 1, abril de 2004

LI J., WANG X., WU Y., “Can government improve tax compliance by adopting advanced information technology? Evidence from the Golden Tax Project III in China” in Economic Modelling Volume 93, diciembre de 2020

LÓPEZ ESPADAFOR C. M., “The general rules of international law before the objective of combating tax evasion” in Cuadernos de derecho transnacional, vol. 8 nº 2, 2016

MAGRANER MORENO F. J., “The coordination of agreements to avoid double taxation at Community level: current situation and future prospects” in Tax Chronicle (137), 2010

MALHERBE J., SCHOTTE C., “Commerce électronique : fiscalité directe et indirecte” in RPS, 2001

MARINI P., Rapport n°614, sur l’économie numérique, déposé à l’Assemblée nationale le 27 juin 2012, Sénat français

MARPILLAT C., La territorialité de l'impôt sur les sociétés dans l'économie numérique, Bruxelles, Éditions Larcier, 2018

MEDUS J-L., “Proposals to Regulate Digital Business” in Journal of International Taxation, July 2017

MONSENEGO J., “La notion conventionnelle d'installation fixe d'affaires à l'épreuve de la Dématérialisation” in Mélanges en l'honneur du professeur Christian Louit, Bruylant, 2016

NDIKUMANA L., “International Tax Cooperation and Implications of Globalizations” in ALONSO J. A., OCAMPO J. A., Global Governance and Rules for the Post-2015 Era: Addressing Emerging Issues in the Global Environment, 2015

OCDE, Empêcher les mesures visant à éviter artificiellement le statut d'établissement stable : action 7, Rapport final 2015

OECD, Developing a Multilateral Instrument to Modify Bilateral Tax Treaties, Action 15-Final Report, 2015c

OECD, Model Tax Convention on Income and on Capital, 2017, art. 5.4

OECD, Preventing the Artificial Avoidance of Permanent Establishment Status: Action 7 Final Report, 2015a

OECD, Prevention of artificial evasion of permanent establishment status: FINAL report of the BEPS project, action 7, 2015b

OECD, Tax Challenges Arising from Digitalization: Interim Report 2018

O'HAREA B. A-M., “International corporate tax avoidance and domestic government health expenditure” in Bulletin of the World Health Organization 97, 2019

OWENS M., LENNARD E. ANDRÉS AUCEJO E., “La financiación del desarrollo sostenible: tributación y objetivos de desarrollo sostenible” in Education And Law Review n° 21, octubre 2019- marzo 2020

PENG W., “Multinational Tax Base Erosion Problem of the Digital Economy” in Modern Economy, No 7, 2016

PERRAUD G., “Une gouvernance fiscale mondiale ?” in Revue européenne et internationale de droit fiscal, Bruylant, n° 2021/1, 2021

PONOMAREVA K.A., “The Concepts of Legal Status of the Permanent Establishment in the Era of Digital Economy” in Journal of Siberian Federal University, Humanities & Social Sciences 11, 2019

REKENHOF, Internationale samenwerking van de Belgische belastingdiensten: Verslag van het Rekenhof aan de Kamer van Volksvertegenwoordigers Brussel, 2011

SANDEMANN RASMUSSEN B., “On the Scope for International Tax Cooperation: The Role of Capital Controls” in Open Economies Review 10, 1999

SEER R., GABERT I., “European and International Tax Cooperation: Legal Basis, Practice, Burden of Proof, Legal Protection and Requirements” in Bulletin For International Taxation, 2011

SHAH A., “Cooperative Law: An Instrument for Development” in 131 Int'l Lab. Rev. 513, 1992

SHEPHERD J., What is the Digital Era? in Social and Economic Transformation in the Digital Era, 2003 quoted in CHEN SIEW Y., NOOR SHAROJA S. y MAZNI A., “Tax Avoidance, Corporate Governance and Firm Value in The Digital Era”, Journal of Accounting and Investment, vol. 19 (2), July 2018

SLAUGHTER A-M., A New World Order, Princeton University Press, 2005

SOUILLARD B., Import Competition and Corporate Tax Avoidance: Evidence from the China Shock, ECARES, July 2020

STEENKAMP L-A., ‘The Permanent Establishment Concept In Double Tax Agreements Between Developed And Developing Countries: Canada/South Africa As A Case Point” in International Business & Economics Research Journal Vol. 13, No. 3, May/June 2014

TANZI, V., “Corruption, complexity and tax evasion” in eJournal of Tax Research, 15(2), 2017

TAX JUSTICE NETWORK, El Estado de la Justicia Fiscal: 2020: La justicia fiscal en tiempos de la Covid-19, noviembre de 2020

THURONYI V., “International Tax Cooperation and Multilateral Treaty” in Brooklyn Journal of International Law, 26(4), 2001

TOUCHELAY B., Fraude, frontières et territoires XIIIe-XXIe siècle, Comité pour l’histoire économique et financière de la France, Paris, Institut de la gestion publique et du développement économique, 2020

TRAVERSA E., ZEYEN G., “Recent Trends in Belgium’s International Tax Policy” in Taxation and Development - A Comparative Study, George Washington University Law School, 2017

TRIBUNAL SUPREMO, Sentencia 2861/2016, ECLI: ES:TS:2016:2861, 20th June of 2016

TUDOR J., “Discriminatory Internal Taxation in The European Union: The Power of The European Court of Justice to Limit the Tax Sovereignty of the Member-States Under Article 110 of the TFEU” in Willamette Journal of International Law and Dispute Resolution, 23(1), 2015

U.S. SUPREME COURT, South Dakota v. Wayfair Inc, 2018

UNITED NATIONS, ECOSOC: la coopération internationale en matière fiscale doit permettre aux pays en développement de dégager plus de ressources propres, au service de leur croissance, ECOSOC/6506, 2012

VACA BOHORQUEZ A.C., “Virtual Permanent Establishment: An Approach to the Taxation of Electronic Commerce Transactions” in Revista de Derecho Fiscal n.° 8, Bogotá: Universidad Externado de Colombia, 2016

VANN R. J., “International Aspects of Income Tax” in THURONYI V., Tax Law Design and Drafting, volume 2, International Monetary Fund, 1998

VAZQUEZ J.M., “Indirect Taxation of Digital Services After BEPS: A Multilateral Instrument to Achieve Harmonization and Effective Enforcement” in Int'l Tax J. 19, 43(5), 2017

VERDIER P-H., “Transnational Regulatory Networks and Their Limits” in Yale Journal of International Law, vol. 34, 2009

Published

2022-10-31

How to Cite

Godts Hanssens, N. (2022). Avoidance of the Permanent Establishment by the Digital Economy and Tax Cooperation as its Solution. Review of International and European Economic Law, 1(2), 153–171. Retrieved from https://www.rieel.com/index.php/rieel/article/view/24