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September 10, 2025Open Access

The impact of BEPS and GloBE initiatives on the taxation of permanent establishments in the digital economy

ОБОлександр Олександрович БобошкоKhmelnytsky University of Management and Law

Key Points

The study shows that the BEPS and GloBE initiatives aim to address taxation of digital economy profits attributable to permanent establishments.
Key provisions from the BEPS Action Plan, particularly Actions 1, 5, and 14, significantly impact the regulation of PE profits amid increasing digitalization.
This analysis includes approaches for attributing PE profits under GloBE rules, emphasizing the necessity of inter-jurisdictional coordination.
The findings indicate that current national tax systems, including those in Ukraine, struggle to align with GloBE standards, necessitating adaptation.

Abstract

This paper examines the impact of the global BEPS (Base Erosion and Profit Shifting) and GloBE (Global Anti-Base Erosion) initiatives on the taxation of profits attributable to permanent establishments (PEs) in the digital age. The author analyzes the current challenges to the international tax system posed by business digitalization, capital mobility, the existence of low-tax jurisdictions, and the growing imbalance in the allocation of taxing rights between source and residence countries. The study reviews key provisions of the BEPS Action Plan–particularly Actions 1, 5, 7, 13, and 14 – that directly affect the regulation of PE profits. It focuses on preventing artificial avoidance of PE status, expanding the concept of economic presence, and reforming transfer pricing approaches. Special attention is given to the GloBE rules under Pillar Two, which introduce a global minimum tax rate (15%) for multinational enterprises. A critical analysis is conducted on the potential implications of these rules for PEs, particularly given their lack of separate legal personality. The paper substantiates the need to adapt national tax legislation to modern international standards, while ensuring tax fairness, avoiding double taxation, and maintaining transparency. The author proposes approaches to attributing PE profits under GloBE rules, considering global group income, allocation mechanisms, and inter-jurisdictional coordination. The findings are practically relevant for legal professionals, tax consultants, and policymakers engaged in international tax reform. The development of digital technologies is fundamentally transforming the global economy and the challenges faced by national tax systems. The classical concept of permanent establishment, based on the criteria of physical presence, is losing its effectiveness, particularly in the context of the rapid growth of platforms, services, cloud computing, and transnational electronic business models. It has been specifically established that national tax systems, including Ukraine’s, are insufficiently adapted to the GloBE standards. The absence of mechanisms for accounting global income, synchronizing with the rules of the parent company's jurisdiction, and determining effective tax rates complicates the implementation of the new approaches.

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