Definition of a Permanent Establishment in Asia

The Permanent Establishment in Taiwan
Both OECD and UN models were taken into consideration when the Taiwan MOF drafted the International Tax Agreement and negotiated and concluded agreements with other countries. However, in order to broaden the tax basis for taxation, the Taiwan tax authority tends to adopt UN models when negotiating with developed countries. In addition, there are similar concepts of the Permanent Establishment in domestic laws such as the Value-Added and Non-Value-Added Act and guidance for the application of Double Taxation Agreements.

Under article 10 of the International Tax Agreement, the “fixed place of business” refers to fixed places for operation of business, including administrative offices, branch or sub-branch offices, business offices, factories, workshops, warehouses, mining fields and construction sites. However, this excludes warehouse or storage sites used exclusively for the purchase of goods and maintenance shops not used for processing or manufacturing products.

In addition, according to article 4 of the Enforcement Rules of the Value-
Added and Non-Value-Added Act , the “fixed place of business” means a fixed
place for selling goods or providing services, including a head office, administrative office, branch, business office, factory, maintenance shop, workshop,
machine shop, warehouse, mining field, construction site, show room, liaison
office, operating office, service station, operating division, branch store, sales
outlet, auction house, and other similar places.

The listed examples of Permanent Establishment under Double Tax Agreements, e.g. with Australia, include, but are not limited to, the following:
“a place of management, a branch, an office, a factory, a workshop, a mine, an
oil or gas well, a quarry or any other place of extraction of natural resources,
an agricultural, pastoral or forestry property, a building site or construction,
installation or assembly project which exists for more than 6 months.”

Which assets constitute a Permanent Establishment
The Taiwan tax authority has provided little guidance in the form of specific
rulings on the definition of “a place of business”, especially concerning
intangible assets. However, the position taken by the Taiwan authority in
respect of a place of business can be found in MOF ruling no. 890458931 dated 5
January 2001. However, because this ruling is for the purpose of interpretation of
the Double Tax Agreements signed between Taiwan and Singapore, the position taken by the Taiwan tax authority in this ruling cannot be applied to other cases which
might involve other agreements.

Under this ruling, if a Singapore enterprise does not have any branch or business
agent in Taiwan, or a website or server in Taiwan, but merely conducts its travel booking business for domestic airline companies through the internet services provided by a telecommunications service provider, the business profit earned by the Singapore enterprise for the services will not be subject to Taiwan income tax according to article 7(1) of the Double Tax Agreements between Taiwan and Singapore, where is stated that “The profits of an enterprise of a territory shall be taxable only in that territory unless the enterprise carries on business in the other territory through a permanent establishment situated therein. Furthermore, if the enterprise carries on business as aforesaid, the profits of the enterprise may be taxed in the other territory but only so much of them as is attributable to that permanent establishment.”

More about Permanent Establishment on Permanent Establishment and International Tax Planning