The Question of what Constitutes a Permanent Establishment Is of Crucial Importance in the International Taxation of Business Profits

Q. The question of what constitutes a permanent establishment is of crucial importance in the international taxation of business profits. Explain why this is so and critically examine recent developments in the interpretation of the concept.
A. Introduction: Importance of permanent establishment.
The term permanent establishment (PE) of a non-resident is a key concept in the typical double tax treaty, and in the OECD model tax treaty. The existence of a PE is necessary for a source country to tax business profits of a resident of another country. …