The Future of the Digital Permanent Establishment Concept: Challenges and Obstacles

Abstract

Addressing the challenges and implications of taxing the digital economy through the concept of Digital Permanent Establishment [DPE] is the main focus of this article.
Traditional tax systems based on physical presence are inadequate for digital businesses that generate significant revenues without a physical footprint. The research examines whether the introduction of DPE can increase tax revenues in countries where digital services are provided. The hypothesis is that DPE will lead to higher tax revenues by capturing profits that are currently shifted to low-tax jurisdictions.
The objectives of the article are to analyse the potential effectiveness of DPE in increasing tax revenues, the barriers to increasing tax revenues of DPE, and to compare the economic impact between countries that have adopted DPE and those that have not. The research methodology includes legal analysis, historical analysis and comparative analysis of approaches from chosen countries.
Challenges and other factors affecting the enforceability and profitability of the tax reduce the expected finding that countries that have adopted DPE have seen an increase in tax revenues from digital services.
This does not mean that DPE is effective in combating base erosion and profit shifting [BEPS] in the digital economy. However, the study also highlights administrative challenges and the need for international coordination to avoid double taxation.
In conclusion, the article’s findings confirm that DPE can increase tax revenues and contribute to fairer taxation of the digital economy. It provides new insights into the implementation and impact of DPE and highlights its potential to modernise international tax systems. The findings underline the importance of adapting tax policies to the realities of the digital economy.