1. Grid and Taxation: the Server as a Permanent Establishment in International Grids GECON 2008, Las Palmas, 25/8/08 Davide M. Parrilli davide.parrilli@law.kuleuven.be

2. Business Experiments in GRID 2 Agenda Research question Grid scenario OECD position Comparative analysis Assessment and proposal Conclusions

3. Business Experiments in GRID 3 Research question serverpermanent establishment In a Grid scenario, is it possible to consider a server as a permanent establishment (PE) of the Grid company?

4. Business Experiments in GRID 4 Grid scenario (I) B manages the gridified ICT infrastructure of A Company A (financial institution) controls company B – B manages the gridified ICT infrastructure of A. B has three Grids in countries C, D and E and wants to ‘unify’ them. Can the taxmen of C, D and E claim taxes for the profits generated there?

5. Business Experiments in GRID 5 Grid scenario (II) For tax purposes every single Grid of a bigger Grid has to be considered as a server – Tax sources are addressed only to servers (extended interpretation of the concept of server).

6. Business Experiments in GRID 6 OECD position (I) OECD Model Tax Convention and Commentaries: 1.The server is a PE of the company (B); 2.The profits generated by the server are taxed in the country where the server is located. PE: requisite for taxation.

7. Business Experiments in GRID 7 OECD position (II) When a server is a PE? It must be fixed; The business must be wholly or partly carried on where the server is located; The server shall not carry out only preparatory or auxiliary activities.

8. Business Experiments in GRID 8 OECD position (III) In our example: B has three PEs and they don’t carry out preparatory or auxiliary activities (e.g. mirror server, advertisement, supply of information): shall B have to pay taxes in three different countries for the same activities?

9. Business Experiments in GRID 9 Comparative analysis UK: for the tax authorities a server is not a PE: no taxation; France: a server is not a PE if no human activity is performed but it is a PE if it carries out all aspects of a business transaction; US: pragmatic approach, case-by-case analysis, as a principle a server is not a PE.

10. Business Experiments in GRID 10 Assessment and proposal (I) OECD based its Model Convention and Commentaries on very basic scenarios: they were and are unaware of the potential represented by Grid technology. The implementation of OECD principles can be a barrier to the creation of transnational business Grids. Practical problem: how can we allocate the portions of profit generated by the servers/Grids in the countries where they are located?

11. Business Experiments in GRID 11 Assessment and proposal (II) Alternative criterion: focus on the link between the server/Grid and the territory where it is located. In general the server/Grid does not play any relevant role in the life of a region/country (social impact, customers, etc).

12. Business Experiments in GRID 12 Conclusions The profits of the Grid company should not be taxed in the countries where the servers/Grids are located (no link with the place of settlement). Consequences: Enabler for transnational Grids, less costs, less litigation, more simplicity; Risk: no taxation – ICT companies can incorporate in a tax heaven and avoid income taxation. The notion of PE seems to be no longer useful.

13. THANK YOU Davide M. Parrilli ICRI – K.U. Leuven – IBBT davide.parrilli@law.kuleuven.be © BEinGRID Consortium