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Taxation of Business Profits & The Concept of PE: Ifm - Faculty of Economics and Management Sciences (Fems) Lecture Four
Taxation of Business Profits & The Concept of PE: Ifm - Faculty of Economics and Management Sciences (Fems) Lecture Four
&
The Concept of PE
IFM - FACULTY OF ECONOMICS AND
MANAGEMENT SCIENCES (FEMS)
Lecture Four
Agenda
• Business Profits - Taxation
• Understanding PE
• Concept of PE
• Types of PE
• PE exemption
Business Profits - Taxation
• Key aspects of taxing Business Profits of Non-
Resident in a Country
① Identifying Non-resident person carrying on
Business in the source country and a country in
which a particular non-resident is a resident.
② Tax treaty Framework for taxing Business profits
③ Whether the Non-resident taxpayer carries on
business through a PE in the Source Country.
④ Attribution of Profits to the PE.
⑤ Allocation and enforcement of taxes.
Business Profits - Taxation
• Key Questions to taxing Business Profits of Non-
Resident in a Country - Information
① Which non-resident carrying on business in the
country?
② Is business carried on through PE?
③ Whether non-resident taxpayer carries on business
activities, meets the threshold for taxation, has
revenue and expenses connected to the PE
④ Whether the price charged for dealings between
the PE and the Non-resident enterprise reflects the
arms’ length principle.
Taxation of Business Profits
Art. 7 of the TZ – SA DTAA (2005)
“The profits of an enterprise of a CS [SA]
shall be taxable only in that State [SA]
unless the enterprise carries on business in
the other CS [TZ] through a PE situated
therein. If the enterprise carries on
business as aforesaid, the profits of the
enterprise may be taxed in the other State
[TZ] but only so much of them as is
attributable to that PE”
Understanding PE
of an enterprise is
wholly or partly
carried on.”
...the profits of that are attributable to the PE,
as if it were a separate and independent
enterprise, may be taxed in that other state
Types of PE
• Fixed place of business
• Building or construction site and installation
project
• Agent PE
• Service PE
Fixed Place of Business (1/4)
Conditions or thresholds of PE
• Place of business
– E.g. a facility such as premises or
machinery/equipment
• It must be fixed
– i.e. a distinct place with certain degree of
permanence
• Carrying on of business through it.
Fixed Place of Business (1/3)
• A branch, an office, a factory, a workshop, a
mine, an oil well,
• Other places of extraction of natural resources
– be-it on-shore or off-shore
Note: what all these places have in common is
1. Place where business is carried on
2. They are fixed
Building or construction site and installation project
(2/4)
• E.g. construction of buildings, roads, brodges,
canal, pipelines, excavating dredging e.t.c
• Installation of complex machines
• On-site planning and supervisions
Note: the 12/6 months test applies to each
individual site or project
Dependent Agent PE (3/4)
• Is a person acting in a CS on behalf of an
enterprise.
• Conditions:
– Such person has and habitually exercise an
authority to conclude contract on behalf of the
name of the enterprise. Such person’s activities
may constitute a PE in the state where the
activities are performed
Service PE (4/4)
• Profits from services performed in a state
territory shall be taxable by that state b’se the
profits are sourced in that state regardless the
absence of a fixed place of business
• Conditions
– PE exists if the service provider exists more than
183 days or periods
PE exemptions
• Auxiliary or Preparatory (Art. 5.4)
– An enterprise shall not have a PE in the other CS if
the activities of the fixed place or the dependent
agent is of preparatory character.
• E.g.
– use of facility soliry for the purpose of storage, display or
delivery of goods or merchandise belonging to the enterprise
– Maintenance of stock of goods or merchandise soliry for the
purpose of processing (raw material) by other enterprise
Taxation of Business profits & PE
concept in Tanzania