n SA Mercantile Law Journal = SA Tydskrif vir Handelsreg - The challenges of taxing profits attributed to permanent establishments : a South African perspective

Volume 21, Issue 5
  • ISSN : 1015-0099
  • E-ISSN: 1996-2185



When countries enter into a tax treaty, the treaty lays down the rules for the taxation of income by the two countries. Tax treaties are usually signed on the basis of a particular model and they generally follow the provisions of the prescriptive articles in the latter. It is a principle of international tax treaties that the profits of an enterprise of a contracting state are taxable only in that state, unless the enterprise carries on business in the other contracting through a permanent establishment ('a PE') situated therein. Even if a PE exists, only the profits attributable to the PE are taxable. Thus, the significance of a PE is that it gives the country in which it is situated (the source country) the right to tax its income, even though the PE has no separate legal existence.

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