What constitutes a permanent establishment (PE) from an e-commerce perspective? Delegates to the Bermuda Chamber of Commerce's e-commerce conference, which gets under way this morning, will be discussing the matter closely, because where a company is deemed to conduct its business affects where it pays its tax. E-commerce allows a freedom of choice in domiciles which many traditional lines of business do not.

Telecommunications Minister Renee Webb, billed as the Minister of e-commerce, will open the conference with a short address this morning.

No international standards have, as yet, been set to define what constitutes a PE. The Organisation for Economic Cooperation & Development (OECD) has taken the lead in this area in the last few days, by issuing draft proposals.

The OECD Working Party No. 1 on Tax Conventions and Related Questions has released a draft for comments on clarifying, in article five of the OECD model income tax treaty commentary, how the definition of (PE) applies in the context of electronic commerce.

The group has invited comments before December 31, 1999. The OECD intends to review and finalise its report before the OECD February 2000 meeting. If the OECD standard is set before any other, it could become the international standard in due course.

The crucial issue, for Bermuda, is which elements of a company's activities must take place on the Island. Merely having a computer here, a German Court has already ruled, is insufficient to allow e-traders to claim that their operations are based in Bermuda.

The OECD working committee cautions that its draft reflects merely the majority views of the working party members and that it should not be viewed as the official OECD opinion or that of any particular OECD-member.

The working party proposes adding seven new paragraphs to the article five commentary, addressing the question of whether the sole use of computer equipment, located in a country through which e-commerce operations are carried out, constitutes a PE. The working party states that a distinction must first be made between computer equipment that can constitute a PE and the data and software used by this equipment. This distinction is important, the proposal states, because the entity that operates a server on which a Web site is hosted may often differ from that which carries on business through the site. Unless the server is a `fixed' place of business, merely operating the Web site from a server located in a country will not be a PE, the OECD draft proposes.

The proposal also addresses whether Internet service providers (ISPs) constitute PEs of enterprises that carry on e-commerce through Web sites operated through servers owned and operated by these ISPs. In general, the OECD proposes not to deem ISPs as PEs -- under general circumstances -- because the ISPs will not be agents of the enterprises that the Web sites belong to.

Finally, the proposal explains that when e-commerce is carried on through computer equipment and the operations are restricted to specified preparatory or auxiliary activities, a PE does not exist. This determination needs to be made on a case-by-case basis, the proposal states, having regard to the functions performed by the enterprise through the software and data stored or operated through this equipment.

BUSINESS BUC