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Outside Europe, only a few countries, including Russia and Japan, have domestic rules that adopt a PE-type threshold for source taxation of services income. Japan’s approach to determining taxable income where a PE has been established differs from that outlined above. Where the PE threshold is met, all income derived by the non-resident SP from sources in Japan will, under domestic law be subject to tax in Japan (“force of attraction”). On the other hand, income attributable to a PE in Japan is not taxed by Japan under domestic law if the source of the income is not in Japan.

In a few countries, source taxation will only apply where the SP is carrying on a business in the jurisdiction. For example, in the UK, liability to income tax arises only if the non-resident is “trading in the UK”. Similarly, in Canada, source tax will only apply (other than in respect of certain management and technical service fees) if the non-resident is carrying on a business in Canada. In the USA, the threshold for taxation of services income of non-resident aliens and foreign corporations is the carrying on of a US trade or business. However, a foreign person who performs services in the USA at any time during the taxable year is automatically considered to be engaged in a US domestic trade or business to which such services income is deemed effectively connected.

Some countries, e.g. Mexico, apply a time threshold so that certain services income is exempt where the presence of the non-resident SP does not exceed a specified number of days.

Most other countries do not apply any minimum threshold for source taxation of services income. In these jurisdictions, such income is, at least theoretically, taxable under domestic law if it has a source in that jurisdiction.


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