Digital Economy and The Taxation of Permanent Establishments in EPC Contracts and Large Contracts: A Global Perspective

R. Ravichandran () and G. Laxmana Rao
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R. Ravichandran: SCMS, Dayananda Sagar University
G. Laxmana Rao: SCMS, Dayananda Sagar University

A chapter in Proceedings of the 5th International Conference on the Role of Innovation, Entrepreneurship and Management for Sustainable Development (ICRIEMSD 2024), 2024, pp 95-112 from Springer

Abstract: Abstract The taxation of the digital economy presents its challenges, and issues across the globe which have been acknowledged by taxation experts worldwide providing different approaches to tax the digital economy, as businesses embrace digital models, and significant challenges are faced in the process. Using an exploratory approach, the study examines the relevant literature in this regard, looks at how the digital economy is going to influence the taxation of Engineering, Procurement, and Construction (EPC) contracts, and what measures are likely to be taken by countries in the process. It examines the different components of an EPC contract that are likely to shift offshore, and what countermeasures will be taken by the Revenue of respective countries. The authors look at the significant rulings of judiciary in the past cases, to arrive at the taxability of offshore and onsite services components, in an EPC contract. It explores how the revenue may deal with taxation of PEs in a digital economy where services components and intangibles are likely to take a major share, and proposes a framework for EPC Contractor, reducing Permanent establishment arising. The study concludes with a look at a possible solution in this regard, by proposing certain mechanisms, and guidelines, that might as well help alleviate the situation, on a pre-consultation basis with tax authorities and help in reducing disputes and ambiguity, in the process of taxation of EPC contracts.

Keywords: Digitalization; Tax planning; EPC contracts; Permanent establishment; Anti Base Erosion and Profit Shifting; Pillar I & II; Treaty Shopping (search for similar items in EconPapers)
Date: 2024
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DOI: 10.2991/978-94-6463-612-3_8

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