Analysis On The Principle Of Profit Attributed To Permanent Establishment Under Digital Economy

The rapid development and innovation of digital has directly affected the way the economy operates,causing changes in the direction of the business environment.More and more enterprises,especially multinational group companies,adopt digital and information technology to develop production.Not only that,but the development of the digital economy has also set off a revolution in the field of international taxation.In July 2013,the Organization for Economic Co-operation and Development(OECD)issued a report on the prevention of tax base erosion and profit transfer,namely BEPS report(Base Erosion and Profit Shifting),and revised the report on December 26,The Model Agreement for the Avoidance of Double Taxation on Income and Capital(the OECD Model Tax Treaty)is designed to address international tax issues arising from the development of the digital economy.One of the key issues involved is the identification of permanent establishments and the attribution of profits.The taxation of permanent establishments has always been an essential part of the field of international tax law,and the attribution of profits involves not only the taxation rights of the country where the permanent establishment is located,that is,the country of income,but also the tax exemption provided by the resident country of the permanent establishment.Prevent double taxation.The identification of the existence of a permanent establishment is the basis for the taxation of the sourcecountry;seeking the method of vesting the profit of the permanent establishment to determine the profit attribution of the permanent establishment is another level that must be resolved after the establishment of the permanent establishment.Therefore,through comparative analysis and case analysis,this paper mainly studies the development and determination of the profit attribution method of the permanent establishment,and focuses on solving the following four problems.(1)Comparison of methods of vesting profits in traditional permanent establishments.(2)Clarify the challenges posed by the emergence of new permanent establishments in the digital economy to the methods of ownership of permanent establishments.(3)Defining the different attitudes of countries based on different developments on traditional methods of ownership of permanent establishments,especially the methods authorized by OECD,in the digital economy.(4)Facing the development of the digital economy,make recommendations to promote the solution to the dilemma faced by the permanent institutions' profitability methods.Therefore,the corresponding content of this paper is divided into four parts.The first part mainly introduces the basic content of the profit attribution method of the permanent establishment,and compares and analyzes the different methods of ownership of the permanent establishment.As early as the early 19 th century,the OECD had given greater attention to the issue of the ownership of permanent establishments.And the formal version of the 2008 version of the OECD tax treaty stipulates the methodological principles followed by the permanent institution's profit attribution.With the development of the times and the changes in the economic situation,the OECD has been committed to following economic changes,adjusting international tax rules,preventing the expansion of double taxation and double non-taxation issues,and coordinating the maintenance of tax revenues between countries.As a result,the OECD tax treaty model has been constantly updated,and the identification of permanent establishments and the method of profit attribution have been revised in the 2010 and 2017 revisions.Since the OECD tax treaty model is not enforceable,the application of the agreement will vary depending on the applicable rules of the treaty as set out in the domestic law of the contracting party.Therefore,not all OECD member countries apply the latest version of the OECD tax treaty.In fact,in terms of the method of ownership of the permanent establishment,the basic principle followed by the OECD is always the principle of independent trading(ALP),which assumes that the permanent establishment is an independent enterprise at the level of profit attribution.However,due to the differences in economic development levels in different periods and the dependence of the permanent establishments of the early multinational corporations on the “physical existence”,the implementation of the independent transaction principles applied in different tax treaty models is different.That is to say,based on the different applicability of the principle of independent transactions,the 2008 OECD tax treaty model is a limited independent assumption of the permanent establishment;and between 2008 and 2010,the OECD 2008 tax treaty model notes were taken.It is the independent assumption of the establishment of the permanent establishment of the expansion;after the revision of the model tax treaty in 2010,it fully implements the principle of independent transactions and adopts an unrestricted and complete assumption of the independence of the permanent establishment.Due to the different degree of independence of the above-mentioned permanent establishments,there is a big difference in the application of the specific permanent establishment profit attribution method.Specifically,it is mainly reflected in the special treatment of the deduction of nominal expenses and the method of attribution of profits of permanent establishments in storage.In addition,in addition to the direct law of vesting in the profits of permanent establishments advocated by the OECD,the OECD also refers to indirect laws that it does not recommend.However,UN is based on the critique of the independence assumption of the permanent establishment,and correspondingly proposes the indirect method,such as the feasibility of applying the formula apportionment method.The second part mainly analyzes the challenges faced by existing permanent institutions' profit attribution methods in the context of the digital economy.The most direct manifestation of the development of the digital economy is that the high-speed circulation has weakened the concept of “physical existence” of the permanentestablishment in the traditional sense,and promoted the dematerialization of production and the decentralization of functions and the creation of supply chains and the circulation of services.Therefore,the traditional permanent establishment profit attribution method is full of loopholes in dealing with changes in the digital economy.The challenges faced by specific permanent institutions can be divided into three areas.First,the development of the digital economy has promoted the revision of the OECD model,which has changed the concept of a permanent institution.The OECD adopts “important economic presence” as a criterion for determining the existence of a permanent establishment.This has widened the scope of the permanent institutions that were originally used as a means of tax avoidance by multinational groups.There are some differences with the AOA method for determining the method of profit attribution of such permanent establishments.Second,the development of the digital economy has also reduced the dependence of permanent institutions on “actual geographic location” and “physical presence”.Most multinational groups use information technology to provide digital services and avoid the need to establish physical presence in the host country.But this does not mean that the permanent establishment does not exist,but only translates into a digital type of permanent establishment.The basis of the traditional AOA method for profit attribution is based on the physical existence of the permanent establishment.Therefore,if new solutions are not sought,determining the profit attribution method of such permanent establishments will eventually lead to taxation rights between countries under different taxation systems.The imbalance has caused countries with slightly higher tax rates to lose large-scale tax benefits.Third,as the development of the digital economy has not yet reached maturity on a global scale,the degree of digitization varies from country to country.In addition to the differences in tax systems in various countries,in order to safeguard the tax benefits of the country,countries have different opinions on the methods of ownership of permanent establishments.If this problem cannot be properly solved,it is very likely that countries with unbalanced tax benefits caused by the digital economy will adopt radical or unilateral taxation measures,which will cause serious double taxation and other issues.The third part is based on the above-mentioned challenges in the vertical economy of the digital economy,and proposes countermeasures and countermeasures.First,the digital economy has driven changes to the OECD model tax treaty and has expanded the scope of the permanent establishment in order to prevent multinational corporations from adopting artificial means to circumvent the determination of permanent establishments.Therefore,after the expansion of the scope of the permanent establishment,the method of determining the profit attribution of the permanent establishment of the traditional digital economic enterprise that is included in the establishment of the permanent establishment proposes corresponding recommendations.Secondly,for the weakening of the physical existence of permanent institutions in the digital economy,the emergence of permanent institutions of new digital economic enterprises makes the principle of independent transactions and AOA methods unsuitable.Therefore,it is recommended that such digital permanent establishments analyze the actual value chain and combine the positive consumer value with the data value to analyze the method of profit attribution that should be applied to such permanent establishments.The last part is about the difficulties faced by the permanent institutions in the digital economy,and how to deal with these problems in the future.In response to the shortcomings of the permanent institution's profit appropriation method as stipulated in China's current legal documents,combined with the characteristics of enterprise value creation under the digital economy,the corresponding response to the future domestic firm's profit attribution method is proposed.Strategy: On the basis of clarifying the concept of “important figures exist”,it is combined with the formula allocation method to fully consider the value creation function of users when determining the distribution factors.In addition,it is suggested that China should clarify the application of the functional independent entity law in the legal documents,and adjust it to integrate the value chain analysis method to determine the attributable profit of the permanent establishment.