A critical analysis of the concepts ‘Permanent Establishment’ and ‘Foreign Business Establishment’

Abstract

The objective of this study was to analyse and compare the concepts permanent establishment and foreign business establishment in order to make recommendations regarding the required additions and amendments to replace the concept foreign business establishment with the internationally recognised and accepted concept permanent establishment. The proposed replacement of the concept foreign business establishment with an internationally recognised and accepted tax concept will enhance the international compatibility of the Income Tax Act 58 of 1962. The use of an internationally recognised and accepted tax concept will provide clarity and certainty regarding the tax implications of section 9D(9)(b) for those affected by it. After comparing the two definitions it was found that, subject to certain suggested additions and amendments, the internationally recognised and accepted concept permanent establishment can replace the concept foreign business establishment in section 9D(9)(b) of the Income Tax Act 58 of 1962 without having a material impact on the objective of section 9D(9)(b). This replacement is possible due to the mutual objective of and the similar components contained in the definitions of the concepts permanent establishment and
foreign business establishment.