Permanent Establishment Flashcards
General rule for international business
Business should be conducted by regional Units
Definition of a PE
Legally dependent business form of the registered presence of a company in a country of activity. Subject to local law and taxation.
Types of a PE
1) Building site/construction/installation PE 2) Dependent agent PE 3) Service PE
Building site/construction or installation PE - duration and activities
Duration more than 12 months, construction activities, on-site supervision, installation
Dependent agent PE - trigger
If a person is acting on behalf of the company and negotiates contracts on behalf of the company
Service PE - duration and activities
More than 183 days (in a 12 months period), consulting activities, software installation, training
Classification of PE within Siemens
1) Project PE(single/multi project), 2) Branch, 3) Representative office
Project PE
Constituted if the parent entity performs activities associated with an order/project over a certain period of time as direct business
Branch
PE defined as branch it it performs key corporate functions such as marketing, order processing, R&D, production or sales on a regular basis. Timeline: Usually longer than 5 years
Representative office
Differs from a project PE or branch, maintained in a country exclusively for auxiliary or marketing purposes, no activities associated with an order
Consequences of PE
Overall: Tax and cost implications of the legal requirements - infrastructure costs + administrative costs + risk of double taxation
1) Commercial/Tax/law - registration, accounting, tax declaration obligation 2) Labor Law (compliance with local law, taxation of salaries, Social Security) 3) other possible legal consequences (Opening bank account, risk of claims filed against parent company, sanctions for non-compliance with obligations)
Project PE approval process
Workflow based through PATAC, approval by CF T PE Governance & CFO
Branch PE / Representative office approval process
Form based process, approval by CF T PE Governance & CFO
Project PE PATAC - Steps (6)
1) Business Input (on/offshore split)
2) Timeline
3) Tax Feedback
4) PE Input (tax consultant)
5) PE Tax checklist
6) PE approval request
On/Offshore Split via FRAA, Checked Topics
Function, Risk and Asset Analysis
1) Function: In which country are the relevant people function performed (e.g. installation)
2) Risks: In which country are project decisions taken and risks borne?
3) Assets: To which country are project assets (bank account, cars) located?
4) Analysis: Country specific regulations
Accounting Approaches for a PE - Requirements / When in place?
PE activities are fully compromised of the parent entity, subject to IFRS, local commercial GAAP, local tax regulations
2) At an early stage
PE, three basic accounting approaches
1) Reporting solution - requires no local accounting for PE, local reporting purely on IFRS figures
2) PE accounting solution - PE maintains a separate accounting system. Accounting data for PE is extracted from the parent entity accounting, further adapted in the PE accounting system (PE IT Tool)
3) Dependent ARE solution - always in the case of a branch.
PE approval - must be in place when?
Before binding offer is placed (PM040)
Opening a PE, steps after PM070
1) Order Creation in PATAC
2) Order Creation business input
3) Update Timeline if needed
4) Update tax feedback
Responsibility of a PE Manager
Representative of the Lead Unit, overall responsibility to organize and monitor setup, processing and closure in accordance with local law. Examples: Open local bank account, hire PE personnel, perform payments on behalf of PE, sign tax declaration
Responsibility of CPMs/Business
Delivering information and data to assure compliance, fulfilling tasks for PE Reporting (e.g. PE IT Tool)
Responsibility of CF T
Responsible for all tax related topics concerning the PE, ensures tax compliance
Responsibility of PE Local accountant
Supports tax function to comply with local law and taxation.
PE, local registrations
1) Corporate income tax registration 2) VAT sales tax registration 3) Personal income tax registration 4) Registration for other local taxes
CISS (Corporate Information on Siemens Subsidiaries) Tool
Central database to record Siemens entities. PE needs to be entered (registration documents, PE Manager). PE receives a CISS number
Setup of PE reporting
SAP setup must reflect on-and offshore split. CPM assigns SD Orders or WBS elements to split Financials
Unintended PE - what to do
Immediately inform tax department via PATAC
How does a PE Manager get assigned?
Assignment letter
What is the PE Manager Checklist?
Checklist to serve as a guide for PE Manager to fulfill his/her duties
PE, Corporate Income Tax
SAP reflects split of project, assures correct taxation of profit attributable to the PE
PE, Withholding Tax
1) Credit-side WHT - must be deducted and paid by Siemens to the tax authority, represents tax payment on behalf of supplier
2) Debit side WHT - must be deducted and paid by the customer to the local tax authority. Represents tax payment on behalf of Siemens
PE, relevant tax types
1) Corporate income Tax
2) Withholding Tax
3) VAT
4) Personal Income tax
PE, Transfer Pricing Documentation
Arms length principle needs to be complied with, based on FRAA. Transfer Price Report needs to be updated on a yearly basis. Consequences: Penalties, ban, damage to Siemens reputation
PE, PATAC, warranty
In case the project is in the warranty phase and warranty activities are required, a separate PATAC entry needs to be created
When can a PE be closed?
When the purpose of the PE has ceased to exist & all legal and tax obligations have been fulfilled.
Liquidation process and local deregistration of a PE
After closure approval has been obtained, recovery of assets, archiving documents, tax audit, closure of bank account
PE Closing status in CISS
Closure approved = in liquidation
Dormant status approved = dormant
Closure rejected due to legal reasons = works completed
Double Taxation Treaty
Contract between two countries in which the taxation rights are distributed among the countries
