Re: Permanent Establishment (PE) Question

Your company has valid concerns. The issue isn't whether you're
subject to tax personally, but rather whether your conduct of company
activities in Pakistan subjects the company itself to tax. By doing
work that is directly related to the company's income-producing
activities, you would most likely constitute a PE and the company would
be required to treat a portion of its income as Pakistan-source income
and pay Pakistan tax on that portion.

It's possible to work around it, but you would really need to consult
with someone directly, rather than looking for free advice on the
internet. If you do so, you need to make sure that whatever solution
you come up with doesn't jeopardize your visa status. It may be
possible for you to take a leave of absence (in writing) from your
employer, set up your own company in Pakistan that will do the work
(with you as an employee of that new company), and sell the end-result
back to your current employer; however, this is basically a tax-dodge,
and might be treated as such by the Pakistan tax authority - I doubt if
they're any friendlier than the IRS is. If you really want to try
something like this, you need to talk to an experienced international
tax attorney who can consider all of the facts, and who is being paid
to give you the right answer(s). Looking for freebie advice on the
internet is a really good way to get really bad advice and get into
really big tax trouble (which, by the way, might jeopardize your visa
status all by itself).

aliaziz@xxxxxxxxx wrote:
Hello All,

I work for a Fortune 500 online retail company in the US. I'm mailing
you for your expert assessment of the following issue and would be most
grateful for your kind help.

I'm working under the H-1b status in the US and plan to proceed to
Pakistan to visit my family and get my H-1b visa stamped from the US
embassy in Islamabad, Pakistan. Currently, it is taking anywhere from a
few weeks to many months for the security clearance process while
obtaining US visas.

I'm working towards an agreement with my US employer to work remotely
in Pakistan (software development from my house in Pakistan) while the
security clearance is being processed by the US embassy. I will be paid
in the US in my US bank account. However, my company's immigration and
tax departments have informed me that Pakistan does not have the 90 day
waiver in determining PE status and this will expose the company to
substantial tax liabilities (do note, my company is currently not a
legal entity in Pakistan).

I have confirmed this from the definition of "permanent establishment"
in the Pakistan income tax manual found on the CBR (Pakistan's IRS)
website (
http://www.cbr.gov.pk/newdt/ITordinance/ITOrdinance2006/IncomeTaxOrdinance2001to2006.zip
- Chapter 1, Section 2 (41) (c) - Page 27). Apparently this 90 day
waiver was removed from the Finance Act of 2003.

I do understand that under the double-taxation treaty of 1959 between
the US and Pakistan, I am personally exempt from any Pakistan income
tax if I work for less than 182 days in a fiscal year in Pakistan.

My question to you is if my company's concerns are valid? Will my
working remotely from Pakistan constitute a PE risk for the company? If
there is a risk, is there a way to avoid/mitigate it? I would
appreciate your valuable insight into this matter.

Best regards,

--Ali Aziz

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