The provisions of Article 5 in the contemporary tax treaties—particularly, the concept of fixed place permanent establishment (PE)—were developed several decades ago during a time when the economy was predominantly in the ‘brick and mortar format’. Clearly, the development of the digital economy has outpaced the advancements in tax treaty developments. To counter that limitation, the tax authorities in some jurisdictions—especially in India—have sought to tax incomes of some foreign enterprises based on a relatively novel concept of ‘virtual PE’.

This article focuses on some important judicial developments with respect to ‘virtual PE’, with particular reference to India, where the tax authorities have persistently tried to adopt that concept.