PE Watch | Latest developments and trends, November 2023

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EY Global

9 Nov 2023
Subject Tax Alert
Categories Corporate Tax
Jurisdictions Global

PE domestic law

Saudi Arabia opens public consultation to amend PE definition

On 25 October 2023, the Zakat, Tax and Customs Authority (ZATCA) released a draft tax law (pdf) for public consultation to revamp the current Saudi Income Tax Law. Among other items, the draft tax law includes amendments to the Permanent Establishment (PE) definition.

Under the revised PE definition, the threshold for the Service PE has been reduced from 183 days in any 12-month period to 30 days within any 12 month-period. Additionally, the draft tax law includes the Agency PE definition in line with the 2021 United Nations Model Tax Convention and an Insurance PE clause.

The public consultation is open for comments until 25 December 2023.

Slovenia publishes draft bill amending PE definition

On 17 October 2023, the Slovenian government introduced a draft bill to revise the Corporate Income Tax law. Among other items, the draft bill amends the PE definition.

The draft bill reduces the time threshold for the Construction PE provision from 12 to 6 months. It also includes an anti-fragmentation clause to prevent the use of the specific activity exemptions to artificially avoid PE status by fragmenting a cohesive operating business into several small operations to argue that each part is merely engaged in preparatory or auxiliary activities.

In addition, the amendments include the Agency PE clause consistent with the 2017 OECD Model Tax Convention. This provision considers a foreign entity to have a PE in Slovenia when a person, acting in Slovenia on behalf of the foreign entity, habitually concludes contracts or habitually plays the principal role leading to the conclusion of contracts that are routinely concluded without material modifications by the enterprise.

If approved by the Slovenian Parliament, these changes will become effective on 1 January 2024.

PE case law

Luxembourg Court challenges the existence of a foreign branch

On 29 September 2023, the Administrative Tribunal of Luxembourg issued a decision (case no. 46470 (pdf)) upholding the Luxembourg Tax Authorities' position, which challenged the existence of a United States (US) branch of a Luxembourg entity.

The Luxembourg Tax Authority issued a tax ruling in 2013 confirming that the US branch met the necessary criteria to be classified as a PE under the Luxembourg-US tax treaty. Despite this confirmation, the Luxembourg Tax Authority later denied the existence of a US branch due to concerns that the Luxembourg entity no longer met the specified conditions outlined in the tax ruling.

The Administrative Court of Luxembourg determined that the actual situation did not align with the facts initially presented by the Luxembourg entity, which had served as the foundation for the tax ruling. Discrepancies were identified between the documents submitted and the facts described in the tax ruling. Consequently, the Administrative Court of Luxembourg ruled there was insufficient evidence to substantiate that the activities of the US branch corresponded to those outlined in the initial tax ruling.

Other PE developments

Italy releases draft decree on investment management exemption

On 16 October 2023, the Italian Minister of Economy and Finance released a draft ministerial decree for public consultation aimed at implementing provisions for the Investment Management Exemption (IME) regime. The IME is a regime under which a foreign investment vehicle can claim that it does not have a PE in Italy where the asset or investment manager, or an advisor operating in Italy on its behalf, can be deemed to be acting independently of the foreign investment vehicle. The decree outlines specific requirements to meet the independence criteria.

In part, the explanatory report for the decree clarifies that the IME also applies where the independent agent acts in Italy in the name of or on behalf of entities directly or indirectly controlled by the foreign investment vehicle. This is contingent upon the controlled entities' being resident in a jurisdiction included in the Italian White List (i.e., a list of foreign states that allows an adequate exchange of information with Italy pursuant to Ministerial Decree 4 September 1996, as amended).

Furthermore, the decree adopts a broad definition of a foreign investment vehicle, covering any entity whose primary purpose is to manage investments for themselves or third parties and that: (i) raises capital from a plurality of investors; (ii) adopts a predetermined investment policy; (iii) is subject to forms of supervision in the foreign State where the investment vehicle is established.

The public consultation will be open until 3 November 2023.

See EY Global Tax Alert, Italian draft ministerial decree provides implementation rules for Investment Management Exemption regime, dated 19 October 2023.


For additional information with respect to this Alert, please contact the following:

Ernst & Young Belastingadviseurs LLP (Netherlands)
  • Ronald van den Brekel
  • Roberto Aviles Gutierrez
  • David Corredor Velasquez
Ernst & Young Solutions LLP (Singapore)
  • Chester Wee
Ernst & Young LLP (United States)
  • Jose A. (Jano) Bustos
  • Gagan Malik
  • Ana Mingramm

Published by NTD’s Tax Technical Knowledge Services group; Carolyn Wright, legal editor

For a full listing of contacts and email addresses, please click on the Tax News Update: Global Edition (GTNU) version of this Alert.