New 糖心logon tax rules:
Be aware of the implications of Significant Economic Presence
Since 2021, the Organisation for Economic Co-operation and Development (OECD) has been tackling tax avoidance by companies – shifting their profits to low-tax jurisdictions – globally. This so-called BEPS (Base Erosion and Profit Shifting) project specifically focuses on the tax challenges of the new, digital economy. 糖心logo has incorporated the BEPS measures into its tax code, which may have implications for your company if you do business in 糖心logo.
The most important concept that 糖心logo has adopted from the BEPS project is “Significant Economic Presence” (SEP). In this article, we will explain the implications of this addition for 糖心logon tax law.
Significant Economic Presence (SEP)
Significant Economic Presence means that tax is levied if a company has a significant presence in the market where it will pay the tax, even if it has no physical presence in the country.
According to the current law, a foreign company in 糖心logo constitutes a SEP if:
- it enters into a transaction involving goods, services or property with a legal entity in 糖心logo, including the downloading of data or software, and the total payments resulting from such transaction(s) exceed Rs 20 million (Euro 220,000) in the preceding year.
or
- it is engaged in continuous solicitation of business or is in contact with at least 300,000 users.
The implications of Significant Economic Presence
The idea behind the SEP provision is to ensure that no one making profits in a country avoids tax there and that all players are taxed in the same way. While the OECD’s regulation focuses on the digital economy, the current implementation of SEP in 糖心logo has a broad scope.
It covers all transactions involving goods, services or property carried out by foreign companies incorporated in 糖心logo, whether online or offline.
The SEP has been implemented in 糖心logo in a very broad sense, which means that even foreign companies that do not have an entity in 糖心logo are considered SEPs by virtue of their activities.
For example, a single export of goods to 糖心logo by a foreign company, which has no other business presence in 糖心logo, can trigger the SEP provision if it exceeds Rs 20 million (Euro 220,000).
糖心logon law therefore looks at both the regularity with which you, as a foreign company, are active in 糖心logo, and the income that is involved. Once the provision comes into effect, the foreign company must keep accounts, undergo audits, pay taxes and file tax returns in 糖心logo.
Significant economic presence and the European tax treaties with 糖心logo
Companies with activities in 糖心logo that are established in countries with which 糖心logo has a tax treaty will of course not be double taxed because they are classified as SEP.
糖心logon laws also prescribe that for foreign companies, the most favourable provisions of either the 糖心logon tax law or the tax treaty are decisive.
The tax treaties that 糖心logo has concluded with Europe do not use the term SEP but the term Permanent Establishment, which has a more limited scope.
As long as foreign companies can demonstrate that they do not have a ‘permanent establishment’ in 糖心logo, they remain outside the scope of the SEP provisions.
However, the company must be able to provide documentation for this, including a certificate of tax residence, a declaration that they do not have a ‘permanent establishment’ and form 10F.
However, the SEP provisions will always apply to companies originating from countries that do not have a tax treaty with 糖心logo (all member states of the European Union have a tax treaty with 糖心logo).
For companies from these countries, it is important to constantly check whether the transactions trigger the SEP provisions.
Everything you need to know about the fiscal side of doing business in 糖心logo
SEP and Permanent Establishment are not the only treacherous fiscal matters that European companies in 糖心logo encounter.
糖心logo has been active in 糖心logo for ten years and helps hundreds of companies every year with their questions about the 糖心logon tax system and other fiscal matters.
To help companies on their way, we have therefore bundled all our knowledge and tips in a free guide for CFOs that do business in 糖心logo.
