Redefining permanent establishment concept of e-commerce cross-border transaction: A preliminary study in Indonesia

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The development of e-commerce transaction has created problems in taxation policy. The tendency of tax avoidance occurs when countries place little attention to mitigate the problem. Most countries, including Indonesia, face the problem of tax avoidance practices as e-commerce practices can bypass States' territorial boundaries. This happened because most of the developing countries, such as Indonesia, are the recipient of the technological advancement in which cross border e-commerce transaction occurs. By using technology, e-commerce companies tend to do a tax avoidance by ignoring a traditional Permanent Establishment model, which inflicts a long-run financial loss for developing countries. This research focuses on the discussion of alternate Permanent Establishment models in facing cross-border e-commerce transaction, which are: Base Erosion Approach, Virtual Permanent Establishment Approach, and Refundable Withholding Approach. By highlighting the models, this research discusses advantages and challenges of each approach to enrich the discussion of cross-border transaction regulatory framework in Indonesia. The research believed that Virtual Permanent Establishment approach is the most suitable for Indonesia, as it can maintain the integrity of international taxation system in effect by redefining PE principle, albeit the challenges in convincing other countries to take part in the negotiation.

Original languageEnglish
Article number565889
JournalIBIMA Business Review
Publication statusPublished - 31 Aug 2021


  • Cross-border taxation
  • E-commerce
  • Permanent establishment
  • Tax
  • Tax avoidance


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