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20 Stellenbosch L. Rev. 74 (2009)
E-Commerce: A Critique on the Determination of a "Permanent Establishment" for Income Tax Purposes from a South African Perspective

handle is hein.journals/stelblr20 and id is 76 raw text is: E-COMMERCE: A CRITIQUE ON THE DETERMINATION OF A PERMANENT ESTABLISHMENT FOR INCOME TAX PURPOSES FROM A SOUTH AFRICAN PERSPECTIVE Annet Wanyana Oguttu LLB LLM LLD Associate Professor, Department of Mercantile Law, University of South Africa Sebo Tladi B luris LLB LLM Senior Lecturer, Department of Mercantile Law, University of South Africa 1 Introduction Before any country can levy a tax on income, a connection or tax nexus must be established between itself and that income. Example of such a connec- tion are the residence nexus, by which residents are taxed on their world-wide income, and the source nexus, by which persons are taxed on income that originates within the geographical confines of the countryl If a multinational company incorporates a subsidiary company in another jurisdiction, the sub- sidiary is considered a separate legal entity that is liable for tax as a resident of that jurisdiction. But if a business entity is not considered a resident2 of the jurisdiction in which it is situated, that jurisdiction may not levy taxes on its income unless the business profits of the entity can be attributed to a permanent establishment (PE) located in that jurisdiction. The significance of a PE is that it gives the country in which the business entity is situated (the source country) the right to tax its income, notwithstanding the fact that the PE has no separate legal existence.4 The existence of a PE in the form of, for instance, an office or a branch5 presupposes that an investor has a tax presence in the foreign country. In determining whether such a tax presence exists, a distinction has to be drawn between trading with a foreign country and trading in a foreign coun- 1 Meyerowitz Meyerowitz on Income Tax (2008) para 7.1. 2 In South Africa, s I of the Income Tax Act 58 of 1962 defines a resident entity as one that is incorporated, established or formed, or has a place of effective management in South Africa. 3 Art 7(l) of the OECD Model Tax Convention on Income and on Capital (OECD Model Convention) July 2008 Condensed Version. See also Olivier & Honiball International Tax: A South African Perspective (2008) 420; Arnold & McIntyre International Tax Primer 2 ed (2002) 73. 4 Art 5(l) of the OECD Model Convention; Skaar Permanent Establishment: Erosion of a Tax Treaty Principle (Series of International Taxation) (1991) 71-101; Olivier & Honiball International Tax 95; Hoffart Permanent Establishment in the Digital Age: improving and stimulating Debate through an Access to Markets Proxy Approach 2007 Nw J of Tech & Intell Prop http:l/www.law.northwestern.edul journal/njtip/v61nl/6 para I (accessed 30-09-2008). s Olivier & Honiball International Tax 2.

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