Journal of Tax Reform
Reconstruction Concept of The Meaning of Permanent Establishment Physical Presence for Tax Purposes
I Nyoman Darmayasa, I Dewa Made Partika
Politeknik Negeri Bali, Badung, Indonesia
Abstract
Technological developments have fostered cross-border e-Commerce transactions. This study aims to reconstruct the concept of the meaning of physical presence in the criteria for identifying foreign individuals and foreign entities as permanent establishments. Reconstruction uses the terminology of physical presence, which is adjusted to the presence of a new post-pandemic order, namely maintaining distance in certain situations. The term maintaining distance is translated as the distance between foreign individuals, foreign entities, and service users. This study proposes a reconstruction of the concepts of physical presence, the subject of permanent establishments, and the objects of permanent establishments. The concept of Significant Economic Presence is relevant to the fulfilment of three criteria: revenue, digital, and user. The reconstruction of permanent establishments involves determining the digital and user aspects. Reconstruction of permanent establishments involves determining the digital aspect of income. This study proves the hypothesis that the addition of Significant Economic Presence criteria to the determination of permanent establishments in e-commerce transactions increases the fairness of taxation rights in the source country. Therefore, it is necessary to review the determination of permanent establishments, especially e-commerce transactions, which are not limited to a physical presence with a wider scope through revenue, digital, and user criteria. This study makes a theoretical contribution to the significance of economic presence by replacing the meaning of the physical presence of a permanent establishment. Thus, the potential for permanent establishment taxation is not limited to the potential value-added tax but can also be on the potential income tax.
Keywords
permanent establishment, physical presence, reconstruction, significant economic presence, fairness, tax reform, tax treaty
JEL classification
H20, H87References
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Acknowledgements
This study was supported by grant number 162/SPK/D. D4/PPK.01.APTV/VI/2023 from Direktorat Jenderal Pendidikan Vokasi Kementerian Pendidikan, Kebudayaan, Riset dan Teknologi. SP DIPA-023.18.1.690524/2023 dated November 30, 2022, 6th Revision dated September 14, 2023.
About Authors
I Nyoman Darmayasa – Dr., SE., M.Ak., Ak., M.M., lecturer of Department of Accounting, Politeknik Negeri Bali, Badung, Bali, Indonesia (Jalan Kampus Bukit Jimbaran, Kuta Selatan, Badung, Bali– 80364), ORCID: https://orcid.org/0000-0001-6341-6909; e-mail: nyomandarmayasa@pnb.ac.id
I Dewa Made Partika – SE, M.Com., B.K.P., lecturer of Department of Accounting, Politeknik Negeri Bali, Badung, Bali, Indonesia (Jalan Kampus Bukit Jimbaran, Kuta Selatan, Badung, Bali– 80364), ORCID: https://orcid.org/0009-0003-6857-3796; e-mail: dewamadepartika@pnb.ac.id
For citation
Darmayasa N., Partika D.M. Reconstruction Concept of The Meaning of Permanent Establishment Physical Presence for Tax Purposes. Journal of Tax Reform. 2024;10(1):38–50. doi.org/10.15826/jtr.2024.10.1.155
Article info
Received August 22, 2023; Revised December 3, 2023; Accepted December 20, 2023
DOI: https://doi.org/10.15826/jtr.2024.10.1.155
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