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ELECTRONIC COMMERCE

The Regional Finance Office of Karlsruhe has issued a decree on whether the installation of an Internet server by a German resident entrepreneur in a foreign country creates a permanent establishment in that foreign country for German tax purposes. The decree states that the “Foreign Tax Relations” section of the federal state and the Lander have decided that, for the time being, the installation of an Internet server is to be treated as a preparatory act under Art. 5(4) of the OECD Model Convention and not as a permanent establishment.



A final decision will be made once the OECD has decided what is the correct treatment for Internet servers.



COMMENT



Article 5(4)(e) says “.. the term `permanent establishment` shall be deemed not to include: the maitenance of a fixed place of business solely for the purpose of carrying on, for the enterprise, any other activity of a preparatory or auxiliary character…”



At the date of writing the OECD have not yet decided on the correct treatment.

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