What is a Permanent Establishment ?

Wikipedia defined Permanent Establishment (PE) as a fixed place of business which generally gives rise to income or value added tax liability in a particular jurisdiction. The term is defined in many income tax treaties and most European Union Value Added Tax systems. Read further from Wikipedia in here

On 17 July 2008, the OECD Council approved the release of the final version of the Report on the Attribution of Profits to Permanent Establishments. The report provides guidance on the principles for attributing profits to a permanent establishment under Article 7 of the OECD Model Tax Convention on Income and Capital. Read further

The importance of the PE concept can be seen from the paragraph 1 of the Commentary on Article 7 of the OECD Model Tax Convention as quoted below :

When an enterprise of a Contracting State carries on business in the other Contracting State, the authorities of that second state have to ask themselves two questions before they levy tax on the profits of the enterprise; the first question is whether the enterprise has a permanent establishment in their country; if the answer is in the affirmative the second question is what, if any, are the profits on which the permanent establishment should pay tax. It is with the rules to be used in determining the answer to this second question that Article 7 of the OECD Model Tax Convention on Income and Capital (OECD Model Tax Convention) is concerned. Rules for ascertaining the profits of an enterprise of a Contracting State which is trading with another enterprise of another Contracting State when both enterprises are members of the same group of enterprises or are under the same effective control are dealt with in Article 9 of the OECD Model Tax Convention.

Indonesia Income Tax Law No. 36 year 2008 article 2 clause 5 defined Permanent Establishment (or Bentuk Usaha Tetap in Indonesian language) as an establishment used by an individual who does not reside or is present in Indonesia for not more than 183 days within any 12 month period, and by an entity which is not established or domiciled in Indonesia to conduct business or activities in Indonesia, which can be a place of management, a branch office of a company, a representative office, a factory, a workshop and others. Read further in here and also in here