n Stellenbosch Law Review = Stellenbosch Regstydskrif - E-commerce : a critique on the determination of a "permanent establishment" for income tax purposes from a South African perspective

Volume 20, Issue 1
  • ISSN : 1016-4359
  • E-ISSN: 1996-2193



When two countries have entered into a double taxation agreement, the profits of an enterprise of a contracting state are taxable only in that state. The other contracting state cannot tax those profits unless the enterprise carries on business in that state through a permanent establishment (PE) situated therein. The existence of a PE in the form of a "fixed place of business" or a "dependent agent" presupposes the existence of a tax presence.

The effective application of the PE concept, however, faces challenges when trade is conducted electronically. This is because with e-commerce, physical locations are not always required in foreign markets in order to engage in significant commercial activities. This article discusses the meaning of the PE concept, analyses the challenges e-commerce poses to this concept, and contains a recommendation for the effective taxation of income that electronic enterprises derive from foreign jurisdictions.

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