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All Journal Journal of International Islamic Law, Human Right and Public Policy
Soeprijono
Universitas Islam Batik Surakarta
Religion Law, Crime, Criminology & Criminal Justice

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A JURIDICAL REVIEW OF THE ESTABLISHMENT OF SIGNIFICANT ECONOMIC PRESENCE AS A SUBSTITUTE FOR THE TRADITIONAL PERMANENT ESTABLISHMENT (PE) IN THE COLLECTION OF INCOME TAX FROM FOREIGN DIGITAL COMPANIES Soeprijono; Ismiyanto; Hafid Zakariya
Journal of International Islamic Law, Human Right and Public Policy Vol. 4 No. 3 (2026): September
Publisher : PT. Radja Intercontinental Publishing

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Abstract

The acceleration of the digital economy has catalyzed cross-border business models that allow foreign digital enterprises to generate massive profits from domestic markets without any physical presence (scale without mass). This condition leads to the erosion of the tax base for market jurisdictions like Indonesia. This article normatively analyzes the transformation of tax law doctrines from the traditional Permanent Establishment (PE) concept based on physical nexus to the criteria of Significant Economic Presence (SEP). This research employs a normative legal research method with a statutory approach and a conceptual approach. The results indicate that the enactment of SEP in the Law on Harmonization of Tax Regulations (UU HPP) is a legitimate manifestation of fiscal sovereignty to reflect the modern economic value creation theory. However, its unilateral enforcement conflicts with international law, specifically Articles 26 and 27 of the 1969 Vienna Convention on the Law of Treaties (VCLT), as long as bilateral Tax Treaties have not been modified. As a pragmatic measure, Indonesia has deferred the execution of SEP-based Income Tax and shifted towards optimizing Digital VAT (PPN PMSE) to avoid global economic retaliation, such as Section 301 of the US Trade Act.
Co-Authors Hafid Zakariya Ismiyanto