PE Watch: Latest developments and trends, December 2021


BEPS Multilateral Instrument: Estonia notifies on the entry into effect of certain Covered Tax Agreements

On 25 November 2021, Estonia notified the Organisation for Economic Co-operation and Development (OECD) Depositary of the Multilateral Instrument (MLI) of the completion of its internal procedures for the entry into effect of the MLI provisions with respect to specific Covered Tax Agreements (CTAs), which is required when a Contracting Jurisdiction has made the reservation in Article 35(7)(a) of the MLI.

Estonia notified seven CTAs. With respect to the permanent establishment (PE) provisions of the MLI, Estonia reserved its right not to apply all of the PE provisions. With respect to the notified CTAs, the provisions of the MLI will generally have effect 30 days after the date of the latest notification to the Depositary under Article 35(7)(b).

PE domestic law

Rwanda: Draft Law expanding Agency PE definition

On 10 November 2021, Rwanda’s Parliament published a Draft Law (pdf) to amend Income Tax Law Nº016/2018. Among other items, the Draft Law proposes to expand the Agency PE definition. In particular, the definition of a person considered to have a PE in Rwanda has been extended to any person acting on behalf of another person and has, and habitually exercises, the authority to negotiate or conclude contracts in the name of that other person, or plays the principal role leading to the conclusion of such contracts in Rwanda.

If enacted, the Law would be effective on the day of its publication in the Official Gazette of Rwanda.

Tax treaties

Belgium – France: New tax treaty signed

On 9 November 2021, Belgium and France signed a new tax treaty. Among other items, the tax treaty includes new PE provisions in comparison to the tax treaty concluded in 1964. In particular, the new tax treaty includes an anti-fragmentation rule, preventing enterprises, and related enterprises, from fragmenting their activities in order to qualify for a PE exemption. Further, the Agency PE has been broadened to cover cases where a person habitually exercises the principal role leading to the conclusion of contracts that are subsequently routinely concluded by the enterprise without material modifications. Moreover, the definition of an independent agent is restricted (excluding persons acting exclusively, or almost exclusively, for one or more enterprises to which this agent is closely related).

The tax treaty still needs to be ratified by both jurisdictions. As soon as the ratification procedures are completed in each jurisdiction, the tax treaty will enter into force. The tax treaty will enter into effect on 1 January of the calendar year following the date of entry into force.

See EY Global Tax Alert, Belgium and France sign new double tax treaty, dated 29 November 2021.

PE developments in response to COVID-19

Ireland: Update to the PE and COVID-19 guidance

On 27 October 2021, the Irish Revenue Commissioners (Irish Revenue) updated its guidance covering temporary concessional treatment for Corporation Tax purposes for employees, directors, service providers or agents, who may have been restricted from travel between countries because of the COVID-19 pandemic.

Irish Revenue is prepared to disregard such presence for Corporate Income Tax purposes for a company where the employee, director, service provider or agent, was either (i) present in Ireland when they would have otherwise been present abroad; or (ii) present abroad when they would have otherwise been present in Ireland.

The individual and the company must maintain records as evidence that the bona fide presence, either in Ireland or abroad, resulted from COVID-19 related travel restrictions. It is stated that this treatment remains valid until 31 December 2021 at which time it will be withdrawn.

Other PE developments

Belgium: Circular about the treatment of foreign PE losses

On 3 November 2021, the Belgian Tax Authorities released Circular 2021/C/97 addressing the treatment of foreign PE losses. According to the Circular, losses from a foreign PE are deductible provided these losses are “definitive” and are incurred in a Member State of the European Economic Area which has a tax treaty with Belgium. Losses are considered “definitive” when the PE ceases its activities in the Member State and does not hold any assets. Also to comply with the “definitive” criteria, the PE should not be able to deduct any losses in the Member State where it is located. If after the PE ceased its activities another PE or subsidiary in the same Member State makes use of the PE losses, those losses cannot be considered definitive and therefore cannot be used in Belgium. If after the use of the losses the Belgian taxpayer resumes activities in the Member State where the PE incurred losses, within three years, the amount deducted in Belgium should be added to the taxable base of the Belgian taxpayer for the year when the activities are resumed.

The Circular deals with provisions applicable as from tax year 2021 related to financial years starting on or after 1 January 2020. 

Portugal: TP guidelines update

On 26 November 2021, the Portuguese Tax Authorities published Ordinance 268/2021 (pdf) to revise the arm’s-length principle as set out in domestic law. For purposes of determining the profits attributable to a PE, the Ordinance provides that the arm’s-length principle should be applied in accordance with the following: (i) 2008 and 2010 report on the attribution of profits to PEs prepared by the OECD; (ii) the commentaries of the OECD Model Tax Convention (OECD MTC); (iii) observations made by Portugal to the OECD MTC; and (iv) recommendations from the Base Erosion and Profit Shifting (BEPS) project (e.g., Additional Guidance on the Attribution of Profits to a Permanent Establishment under BEPS Action 7).

The Ordinance will enter into force on 27 November 2021.


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

Ernst & Young Belastingadviseurs LLP, Rotterdam
  • Ronald van den Brekel
  • Marlies de Ruiter
  • Maikel Evers
Ernst & Young Belastingadviseurs LLP, Amsterdam
  • David Corredor-Velásquez
  • Roberto Aviles Gutierrez
  • Konstantina Tsilimigka
Ernst & Young Solutions LLP, Singapore
  • Chester Wee
Ernst & Young LLP (United States), Global Tax Desk Network, New York
  • Jose A. (Jano) Bustos
  • Ana Mingramm

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