handbook-tb

Protecting the tax base of developing countriesconcepts has now been converted to “cyber” transactions that arenot taxed.5.2.1 Possible solutions and developing country perspectivesIn these circumstances, it might be possible to re-evaluate the traditionalpresence tests in light of new technological developments. Thisis part of the broader discussion of the relevance of the permanentestablishment concept discussed in section 4.1 above. For example, thetypes of activities that traditionally have not constituted a PE mightbe treated differently where the sales in a jurisdiction are made online.Thus the existence of a warehouse, which often does not constitutea PE (see, however, United Nations Model Convention, Article 5 (4)(a)) might be evaluated differently in this context. Similarly, activitiesin the jurisdiction that would not normally lead to the existence of adependent agent PE might need to be evaluated differently where thesales take place online. In a more far-reaching modification of existingrules, ICT activities in a jurisdiction might be considered to be a“virtual PE” based on the existence of “significant digital presence.” Itmight also be possible to evaluate the business activities of a taxpayerin the jurisdiction by taking into account both the physical presenceand the digital presence in the jurisdiction to determine if there was“significant business presence.” Similarly, the collection of informationthrough a fixed place has traditionally been viewed as not constitutingin itself a PE. But where the extensive ability to collect and utilizedigital information is the primary revenue source of the business, adifferent result may be required to adequately protect the tax base ofthe source country. These issues are also examined in connection withavoidance of permanent establishment status in section 4 above andincome from services in section 9 below.5.3 Income characterizationApart from the issue of taxable presence, the existence of ICT has raisedissues as to the appropriate characterization of particular items ofincome that result from digital access to the goods or services involved.Thus, the traditional sale of goods can be transformed into a licence fordownloading a digital file or a manufacturing activity can be carriedout digitally through “3D printing.” Utilization of “cloud” transactions21