PE Watch: Latest developments and trends, February 2023


OECD releases administrative guidance for Pillar Two

On 2 February 2023, the Organisation for Economic Co-operation and Development released Administrative Guidance (pdf) (the guidance) for the implementation of the global minimum tax. Among other items, the guidance addresses questions related to Permanent Establishments (PEs). For example, it clarifies that if the Main Entity is considered an Excluded Entity, then all its activities, including those performed by its PEs, are excluded from the Global Anti-Base Erosion (GloBE) Rules.

Another topic addressed is the calculation of the Qualified Domestic Minimum Top-up Tax (QDMTT). Accordingly, a jurisdiction with a taxable branch regime must exclude the income or loss of a foreign PE from the income or loss of the Main Entity when calculating the QDMTT. Further, a QDMTT will not include taxes paid by a Main Entity that is allocable to a PE. The guidance notes that the Inclusive Framework will consider providing further guidance on the allocation of income to PEs under a QDMTT in particular circumstances (e.g., in respect of stateless PEs).

PE case law

India: Court rules that servers do not constitute a PE

On 3 January 2023, the Income Tax Appellate Tribunal (ITAT) of New Delhi ruled on case ITA No. 7354/Del/2017 (pdf) analyzing whether the provision of online services by a nonresident constitutes a PE in India. In the instant case, the nonresident uses computer servers in the United States to market and provide travel-related products and services to Indian airlines.

The tax authorities alleged that the Indian customers' computer terminals were a crucial part of the nonresident's main ticket booking system and therefore they assess the existence of a PE. However, the ITAT agreed with the order of Commissioner of Income-tax Appeals (CIT(A)) stating that the nonresident did not have a fixed place of business in India as no equipment is installed by the nonresident with the clients.

Other PE developments

United Kingdom: Report on tax implications of hybrid and remote working

On 20 December 2022, the Office of Tax Simplification (OTS) published the report “Hybrid and distance working report: exploring the tax implications of changing working practices (pdf).” The OTS gives independent advice to the United Kingdom (UK) Government on simplifying the tax system, to make things easier for taxpayers.

The report focuses on the trend of allowing employees to work temporarily or permanently overseas while still being employed by UK businesses. Businesses mainly expressed concerns about the potential tax implications, such as the creation of a PE. They suggested to provide relief or a "safe list" of jurisdictions may help with short-term stays and asked for clarification on the definition of a home office PE. Businesses also suggested safe-harbor guidance to streamline the compliance implications of transfer pricing.


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

Ernst & Young Belastingadviseurs LLP, Rotterdam
  • Ronald van den Brekel
Ernst & Young Solutions LLP, Singapore
  • Chester Wee
Ernst & Young LLP (United States), Global Tax Desk Network, New York
  • Jose A. (Jano) Bustos

  • Ana Mingramm


  • Roberto Aviles Gutierrez

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