Permanent Establishment: core business activity

A core business activity (sales, manufacturing, etc.) is required to be carried at the location in Taiwan, accordin to several rulings (nos. 09504500160, 871936481,
09704523800, 810826274, 7521389, and 7558643) on the activities carried on by
the local entity which is considered to be a Permanent Establishment. According to these rulings, the core business activity needs to be involved at, in or though the place of business to be considered as being carried on through the place of business. If only auxiliary activities are provided, and no sales or manufacturing activity has been performed, these should not be considered as carried on through a place of business.

The following examples given by several rulings provide the guidance that when
several activities are combined and carried on at the same place/location, only if
core business activities have been provided will it be considered that a business
is being carried on.

When a local entity has been engaged by a foreign entity to provide the storage,
assembly, testing and delivery of goods to local clients or for export overseas
at a location in the free trade zone, the local agent is considered a business
agent and is carrying on business activities at that location (MOF ruling no.
9504500160).

When a local entity has been engaged by a foreign entity to import goods, or
to provide storage and sales to local clients at places of business, the local agent
is considered a business agent and is carrying on business activities at that location.

If the activities carried on are only limited to storage, disassembly and
rearrangement of the goods, and the nature, shape, function and color have not
been changed, then these activities will not trigger the Permanent Establishment issue and therefore no Taiwan income issue will arise.

Whether a job site office or reception center has sales activities will depend on
whether the receipt of deposit, conclusion of contract and collection of payments
is involved. If the activities are only limited to client reception, liaison or checking and acceptance of goods without sales activities, then there is no need to
carry out a tax/business registration (MOF ruling no. 810826274).

If the services rendered are limited to job supervision, trial run of machinery
and equipment and technical cooperation, the foreign entity may be exempt from
tax/business registration (MOF ruling no. 7521389).

If the liaison office of the foreign entity in Taiwan provides procurement
services for the foreign entity with no other business activities, the liaison
office is also exempt from tax/business registration, which have effects in the Permanent Establishment consideration.

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