PE and International Tax Law in a Latin American Context

Intenational approach of PEs, and Uruguay speciallities

The OECD model convention and the UN and US model conventions start with a general clause for defining a PE, namely, a "fixed place of business through which the business of an enterprise is wholly or partly carried on".

Uruguay's domestic legislation has adopted this definition while eliminating the need for the enterprise to carry on all or part of its business in Uruguay (article 10, title 4, TO). It does not include any requirement, either, for the fixed place of business to be productive, thereby adhering to the principle of economic belonging in the PE definition.

On the other hand, the Uruguayan state's treaty practice has adhered closely to the definition proposed by the OECD and UN model conventions.

As stated in the introduction to this report, since there are not many administrative rulings on this matter nor is there any case law, it is only possible to mention a few cases in which the Uruguayan tax authorities (DGI) have tangentially analyzed the existence of a fixed place of business, without delving deeper into the analysis of the commentaries on the OECD and UN model conventions, or using, at least directly, the well-known tests of location, duration or right of use in order to deem that a PE exists.

For illustration purposes, in ruling 2057,18 the DGI took the view that the ad hoc lease and sale of real estate did not constitute a PE. Note that although this view predates the tax reform introduced by Law 18,083, its interest lies in the fact that the tax authorities considered that the direct performance of an isolated act was not sufficient for a fixed place of business to be deemed to exist; instead, this required the performance of such acts on an ongoing and permanent basis over time. This ruling shows, albeit not very clearly, the significance of duration, time and repetition in the definition of a PE, which could be crystallized in the future through application of the duration test.

Furthermore, in ruling 4969 of 2008,20 subsequent to the tax reform, the taxpayer was a foreign firm that provided industrial consulting services by sporadically assigning one of its partners to Uruguay. Although the tax authorities denied the existence of a PE by reason of the services rendered (a special case which is analyzed further on), it should be noted that the ruling recognized that the partner's trips to Uruguay and the rendering of services on the client's premises in Uruguay did not constitute a PE, since they implied that the foreign firm "did not wholly or partly carry on its business through a fixed place of business in Uruguay".

In addition, although there have not yet been any rulings on the issue, this section would not be complete without a brief reference to the impact of the PE definition on e-commerce, bearing in mind the huge relevance that this way of doing business has to the modern world and its strategic nature for Uruguay in view of its efforts to become a regional services center. Regarding this issue, which has already been analyzed excellently by Uruguayan tax commentators,22 suffice it to say that the OECD has paid special attention to its impact on the PE definition23and taken the view that the mere combination of intangible elements that make up a website does not mean that a PE exists, whereas a PE may be deemed to exist where there is a server on which activities specific to the enterprise's core business and not preparatory or auxiliary are engaged in.

In conclusion, Uruguay has adopted the general definition of PE contained in the OECD and UN model conventions in its domestic legislation and treaty practice. Although at present there is no solid administrative or legal opinion on its interpretation, the views that have been expressed by the authorities on an isolated basis are consistent with the definitions and interpretations of these international forums, and, in general, this trend will foreseeably continue since the express sources of the reform are precisely today's best international tax practice, which, for the most part, has remained largely the same over time.