Double taxation of e-commerce

In order to avoid double taxation of business entities generating income outside the country, governments enter into bilateral agreements allowing for the taxation of income in the country where the entrepreneur has their registered office or permanent establishment. An exception to this

principle allows for the taxation of a portion of profit separated from the entire enterprise, generated by a permanent establishment in the country where that establishment operates. Due to differences in tax rates, it may therefore become profitable to maintain a single establishment outside the country and serve customers through that establishment. Interestingly, in the information society era, a permanent establishment does not have to be a physical office with employees present. A server providing online sales services for an entrepreneur can be considered a permanent establishment.