Q:
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What is the purpose of confirming a permanent establishment?
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A:
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Clause of the tax treaty. It is mainly combined with the operating profit clause to form a taxation rule for the operating profit obtained by one of the contracting parties, so as to limit the taxation right of the source country of the income and avoid double taxation. Permanent establishment rules are not only a prerequisite for taxation, but also the basis for distinguishing taxable income. Generally speaking, income attributable to a permanent establishment shall be taxed in accordance with the business profits of the permanent establishment, and income not attributable to a permanent establishment shall be taxed in accordance with other provisions.
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Q:
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What is a permanent establishment?
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A:
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The term "permanent establishment" specifically includes: management sites; branch offices; offices; factories; workshops (workplaces); mines, oil or gas wells, quarries or other places where natural resources are exploited. In addition to the above-mentioned list, my country and some countries have also added some items, or listed circumstances that are not permanent establishments in an exclusive manner. Secondly, in addition to the general provisions of permanent establishments, there are usually special provisions on the standards for contracting projects and providing labor services to constitute permanent establishments and agency permanent establishments.
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Q:
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How to pay taxes if it is recognized as a permanent establishment?
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A:
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If a permanent establishment is constituted, the host country has the right to tax the profits made by the permanent establishment, but only the profits attributable to the permanent establishment shall be limited. The "profits attributable to the permanent establishment" referred to here includes not only the profits obtained by the permanent establishment from the country, but also the various types of income obtained by the permanent establishment outside the country that are actually related to the permanent establishment, including dividends , Interest, rent and royalties. The actual connection mentioned here generally refers to the direct ownership or actual operation and management of shares, creditor's rights, intellectual property rights, equipment and related activities.
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Q:
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Under what circumstances will it not be recognized as a permanent establishment?
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A:
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A fixed business place specially set up for the purpose of preparatory or auxiliary activities of the enterprise;
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Facilities used exclusively for the purpose of storing, displaying or delivering goods or commodities of the enterprise;
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The inventory of goods or commodities of the enterprise is kept exclusively for the purpose of storage, display or delivery, or for the processing purpose of another enterprise;
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A fixed business place set up exclusively for the purchase of goods (commodities) for the enterprise, or for gathering information, or for other preparatory or auxiliary activities;
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A fixed business place specially set up for the combination of the above activities, if due to this combination, all activities of the fixed business place are of a preparatory or auxiliary nature.
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Q:
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Will the parent company's activities in the subsidiary cause the parent company to form a permanent establishment in the country where the subsidiary is located?
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A:
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The Circular of the State Administration of Taxation on Printing and Distributing the "Agreement between the Government of the People's Republic of China and the Government of the Republic of Singapore on the Agreement on Avoiding Double Taxation and Preventing Tax Evasion on Income" and the interpretation of the provisions of the protocol (Guo Shui Fa [2010] No. 75) clearly grasps two aspects. For reference:
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The parent company shall send personnel to the subsidiary to work for the subsidiary at the request of the subsidiary. These personnel are employed by the subsidiary, and the subsidiary has the authority to direct its work. The work responsibilities and risks have nothing to do with the parent company and do not constitute a permanent establishment.
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The parent company has command and assumes risks and responsibilities for the work of the above-mentioned personnel, or the number and standards of the staff assigned to work in the subsidiary are determined by the parent company, or the salary of the above-mentioned staff is borne by the parent company, or if the parent company obtains profits from the subsidiary by sending personnel to the subsidiary to engage in activities, it can be deemed to constitute a permanent establishment.
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FAQ
