BEPS MLI

Brazil signs the MLI

On 20 October 2025, the Organisation for Economic Co-operation and Development (OECD) announced that Brazil signed the Multilateral Instrument (MLI). At the time of signature, Brazil submitted a list of tax treaties that it would like to designate as Covered Tax Agreements (CTAs) and submitted a preliminary list of reservations and notifications in relation to the CTAs (MLI positions).

With respect to the permanent establishment (PE) provisions, Brazil has reserved the right not to apply Article 10 of the MLI (Anti-abuse Rule for Permanent Establishments Situated in Third Jurisdictions), while choosing to adopt all other PE-related provisions.

PE rulings

Denmark clarifies loss carryforward for PEs

On 28 October 2025, the Danish Tax Appeals Agency issued a binding ruling on the treatment of tax losses of a Danish PE of an Austrian company. The Danish PE had accumulated significant tax-deductible losses but ceased operations in 2015 following the dissolution of its joint-venture partner. From that point, no business activity, income or assets remained. Although the branch was inactive, it formally remained registered until 2018, when the Danish Tax Agency reviewed the file and questioned whether the losses could still be carried forward.

The Danish Tax Agency concluded that the company's limited tax liability to Denmark ended when the PE effectively ceased business in 2015. Once that liability ends, any unutilized tax losses automatically lapse and cannot be used or reinstated if the company later resumes activity in Denmark. Accordingly, even though the PE had not attempted to use the losses, the authorities adjusted the register in 2018 to reduce the loss balance to zero.

The Danish Tax Appeals Agency upheld this position, confirming that the lapse of losses followed automatically from the termination of Danish tax liability and was not discriminatory under EU law. It emphasized that both Danish-resident and nonresident entities are treated equally when their tax liability ceases, thereby reinforcing the principle that once a PE permanently shuts down, any accumulated Danish losses are forfeited.

PE case law

India clarifies cessation of activities and PE relevance to business continuity

On 17 October 2025, the Supreme Court of India addressed whether a nonresident company had actually ceased business during a gap between contracts, a question with direct implications for deductions and unabsorbed depreciation. The case involved a French drilling company that operated in India under contracts from 1983 to 1993 but did not secure another until October 1998. During that five-year gap, the company continued bidding on new work and filing Indian tax returns showing only modest administrative expenses and interest income from tax refunds, along with claims to carry forward earlier depreciation.

The Assessing Officer viewed this period as a cessation of business and denied the deductions, a position upheld by the Commissioner of Income Tax (Appeals). The Income-tax Appellate Tribunal disagreed, characterizing the gap as a temporary "lull" rather than a closure, but the High Court reversed and reinstated the disallowance.

The Supreme Court ultimately sided with the taxpayer, holding that the company was still "carrying on business" in India during the gap. It emphasized that ongoing bidding activity and correspondence demonstrated a continuing intent to operate, even in the absence of active contracts. Importantly, the Court rejected the High Court's view that a PE was necessary for business to be considered ongoing, clarifying that the Income Tax Act does not require a nonresident to maintain a permanent office in India for income to be taxable there.

Germany denies deduction for foreign PE losses

On 2 October 2025, the Düsseldorf Tax Court published decision 2 K 3098/20 G,F, ruling that losses from a Belgian PE could not be deducted in Germany. The case involved a German partnership that was the head of a German fiscal unity. Its German subsidiary had with a Belgian PE that was liquidated, rendering its losses unusable in Belgium. The taxpayer sought to deduct those losses in Germany, but the tax authorities denied the deduction, citing domestic law and established jurisprudence. The court upheld this position.

In its reasoning, the court referred to Articles 7 and 23 of the Germany-Belgium Tax Treaty, which exempt from German taxation both profits and losses from a Belgian PE. The court found that the final protocol's clause allowing Germany to apply a "subject-to-tax" condition did not change this result. The court further concluded that EU law does not require Germany to recognize final losses incurred abroad, citing Court of Justice of the European Union case law confirming that a state that has waived its taxing rights under a treaty cannot be compelled to grant cross-border loss relief.

The taxpayer's constitutional arguments were also dismissed. The court found no breach of the ability-to-pay principle under German Constitution or of EU fundamental rights, holding that Germany's approach was consistent with preserving the international allocation of taxing rights. The claim was therefore dismissed in full; however, appeal is allowed.

PE domestic law

Kenya Revenue Authority publishes draft regulations on Significant Economic Presence Tax

On 22 September 2025, the Kenya Revenue Authority (KRA) released draft Income Tax (Significant Economic Presence Tax) Regulations, 2025 for public consultation. The regulations will operationalize the Significant Economic Presence (SEP) tax which replaced the former digital services tax regime. SEP tax expands Kenya's taxing rights over nonresident businesses that earn income from Kenyan users through digital channels.

Under the draft rules, a SEP arises when services are provided to users in Kenya, identified through indicators such as a Kenyan IP address, payment made via a Kenyan financial institution or a local billing address. The regulations apply to income derived from online platforms, cloud computing, streaming services, software and other digital business models.

SEP tax introduced a deemed profit approach, where 10% of the gross turnover is considered taxable profit and subject to Kenya's corporate tax rate of 30%, resulting in a 3% effective tax on gross revenue. The tax is final for nonresident entities and does not apply to businesses operating through a Kenyan PE or income already taxed under other provisions of the Income Tax Act. Nonresident service providers would be required to register for a Kenyan Personal Identification Number, file monthly returns and maintain records of transactions in accordance with the Tax Procedures Act.

See EY Global Tax Alert, Kenya Revenue Authority publishes draft regulations on Significant Economic Presence Tax scope and compliance, dated 15 October 2025.

Other PE developments

India issues working paper on PE and profit attribution for foreign investors

On 3 October 2025, NITI Aayog, the Government of India's leading public policy think tank, released a working paper titled "Enhancing Certainty, Transparency and Uniformity in Permanent Establishment and Profit Attribution for Foreign Investors in India." The report highlights that although foreign direct investment into India continues to increase, persistent uncertainty over when a foreign enterprise is deemed to have a PE in India and how profits should be attributed to that PE remains a major source of investor concern.

The paper traces the evolution of India's approach to PE and profit attribution, from the traditional "business connection" concept to the modern Significant Economic Presence framework and notes inconsistent application across tax authorities and tribunals. It emphasizes that differing interpretations have led to disputes, prolonged litigation and unpredictability in cross-border tax outcomes.

To address these challenges, NITI Aayog calls for a more transparent and predictable framework, including clearer PE definitions, simplified profit attribution rules, optional industry-based presumptive taxation models and faster dispute resolution mechanisms. The paper signals India's intent to align its tax administration more closely with international best practices while safeguarding its taxing rights over economic activity carried out within the country.