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Tag Archive for Permanent Establishment

U.S. Tax Treaties: What Is A Permanent Establishment? What Activities Are Generally Not A Permanent Establishment?

U.S. Tax Treaties: What Is A Permanent Establishment? What Activities Are Generally Not A Permanent Establishment?

The Tax Risk Of Permanent Establishment

Recent  developments, such as the Tax Cuts & Jobs Act (TCJA) and the OECD’s Base Erosion and Profits Shifting (BEPS) initiative, have forced multinational businesses to re-evaluate global strategies and the tax impact of doing business abroad.   Navigating the risk of a permanent establishment remains among the most important international tax risks.

While a nonresident alien or foreign corporation engaged in a trade or business in the United States is generally subject to taxation on its net taxable income that is effectively connected with the conduct of the U.S. trade or business, the rules are different (or at least, can be) when a resident of a treaty country conducts the business.  Where a tax treaty is applicable, the concept of a permanent establishment—and whether income is attributable to that permanent establishment—replaces the concept of effectively connected income as the governing standard.

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Permanent Establishment or Not?

Permanent Establishment or Not?

When it comes to tax, trading internationally from a fixed place of business is quite confusing and daunting. If you are trading abroad, the location where the business is wholly or partially conducted can inadvertently create a Permanent Establishment (PE). With different examples, this document will explain how a PE is created and provide a high-level overview of the hidden traps that can trigger a PE.

When it comes to tax, trading internationally from a fixed place of business is quite confusing and daunting. If you are trading abroad, the location where the business is wholly or partially conducted can inadvertently create a Permanent Establishment (PE). With different
examples, this document will explain how a PE is created and provide a high-level overview of the hidden traps that can trigger a PE.

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Italian Tax Code: Economic Nexus Rule And Changes To Permanent Establishment

With the Budget Law for 2018 (Law n. 205 of December 27, 2017), Italy amended the definition of the term “permanent establishment” set forth in article 162 of the Italian Tax Code.

The term permanent establishment now covers situations in which a foreign enterprise does not have a physical nexus with Italy, but it has a regular and continuous economic presence in the country; engages in ancillary activities that are an essential component of its core business, or operates through commissioners or other agents who do not enter into contracts in the name of the enterprise, but procure the conclusion of contracts that are eventually signed by the principal with no material modifications. Read more

S Corporations Beat-Out LLCs For Americans Carrying On Business In Canada

As a general rule, U.S. residents are only subject to Canadian tax on business income to the extent that such income is earned via a permanent establishment (“PE”) in Canada(1).

If a U.S. C corporation earns profits that are taxable in Canada, such profits will be subject to federal corporate taxation under Part I of the Income Tax Act (“the Act”) at a rate of 15%, plus, assuming there is a PE in a province, provincial corporate taxation at varying rates. For example, in Ontario the rate is 11.5% and in Alberta the rate is 10%, thereby resulting in combined corporate tax rates of 26.5% and 25%, respectively(2).

In addition, a U.S. corporation earning income from carrying on business in Canada may also be subject to the “branch tax” that is levied under Part XIV of the Act. This tax is quite Read more