In African economies, the extractive industries play a pivotal role. These sectors are heavily regulated by public authorities, aiming to maximize tax revenue, highlighting the need for a well-defined notion of "Permanent Establishment" (PE) for tax purposes, especially in Senegal's growing extractive industry.
The term "permanent establishment" (PE) is crucial for determining the tax obligations of foreign companies operating in a state where they are not resident. Yet, Senegal's current legislation does not offer a clear definition, largely depending on bilateral and multilateral tax conventions for guidance.
A significant development is Senegal's collaborative project with Mauritania on the Grand Tortue Ahmeyim (GTA) gas field, which introduces a specific approach to defining PE within the extractive sector. Law 2019-07 of 27 February 2019 broadens the definition to include, among the usual conditions for PE consideration, the following criteria:
- Apparatus or structures on the seabed or land used in field exploitation;
- Installations for extracting, receiving, processing, converting, or liquefying natural gas, including storage and loading for export;
- Platforms, structures, installations, or equipment for natural gas treatment before dispatch;
- Construction sites, assembly or installation projects, or related supervision activities lasting more than 183 days;
- Service provision by a company, including consultancy, for the same or a related project over 183 days.
Comparing Senegal's stance with international practices, it's evident that some resource-rich countries have already adopted more nuanced definitions of PE in their tax treaties, particularly regarding offshore activities. These precedents offer valuable lessons for Senegal, suggesting a strategic renegotiation of existing conventions and a potential redefinition of PE to better suit the extractive sector's unique demands.
Moreover, the rise of the digital economy introduces new challenges and opportunities for defining PE. Remote operations and the increasing role of technology companies necessitate an adaptation of taxation models to keep pace with these evolving practices.
The OECD-G20 initiative's inclusive framework aims to address tax challenges posed by the digitalization of the economy, proposing a reevaluation of what constitutes a PE. This includes recommending specific provisions in tax treaties related to the extractive sector, envisioning a future where taxation rights are securely anchored amidst technological advancements.
Navigating these changes, the redefined concept of PE remains central to equitable taxation in the extractive sector. For Senegal and other resource-rich African countries, adjusting tax laws and international agreements in line with the sector's complexities and the nuances of digital economy will be critical for securing a fair share of revenue from invaluable natural resources.
If you wish to discuss these topics, please contact:
Face Africa Tax & Legal
