Core Viewpoint - The article discusses the concept of "permanent establishment" in the context of tax treaties, particularly focusing on the China-New Zealand tax agreement and its implications for taxation rights between contracting states [3][4][5]. Summary by Sections Definition of Permanent Establishment - A "permanent establishment" refers to a fixed place of business through which a company conducts all or part of its operations. It is essential for determining the taxation rights of one contracting state over the profits of a company from the other contracting state. The characteristics include: 1. The business location must be physically present. 2. The location must be relatively fixed and have a degree of permanence over time. 3. All or part of the business activities must be conducted through this location [3]. Types of Permanent Establishments - The China-New Zealand tax agreement specifies several types of permanent establishments, including: 1. Management places 2. Branches 3. Offices 4. Factories 5. Work sites 6. Natural resource extraction sites (mines, oil wells, etc.) 7. Construction sites or related supervisory activities lasting over six months 8. Activities conducted by employees or hired personnel exceeding 183 days within any twelve-month period 9. Activities conducted by a person authorized to sign contracts on behalf of the enterprise [3][4]. Exceptions to Permanent Establishment - Certain situations do not constitute a permanent establishment, including: 1. Facilities solely for storage, display, or delivery of goods 2. Inventory maintained for processing by another enterprise 3. Fixed places for purchasing goods or gathering information 4. Fixed places for preparatory or auxiliary activities [4][5]. Taxation Rights Related to Permanent Establishment - The implications of having a permanent establishment for taxation rights include: 1. Business profits are taxed only in the contracting state where the permanent establishment is located, except for profits derived from the other contracting state. 2. Dividends can be taxed in the source country if the recipient is a resident of the other contracting state and has a permanent establishment there. 3. Interest can also be taxed in the source country under similar conditions as dividends [7][8].

Core Viewpoint - The recent requirement from the IRS for sellers using Amazon's FBA warehousing service to pay federal income tax has caused significant concern among Chinese cross-border sellers, leading to fears of double taxation and reduced profits. However, the situation requires a calm analysis to distinguish between exaggerated interpretations and actual policy changes [1]. Event Origin: Where Does the Panic Come From? - The tax anxiety stems from two types of articles circulating, but the truth is more nuanced: 1. The IRS is indeed strengthening e-commerce regulation, but there are no new rules specifically targeting FBA sellers. The IRS plans to enhance enforcement for online sellers starting in 2025, using data analysis and third-party payment processors to identify unreported income [2]. 2. Misinterpretations in the domestic market suggest that FBA sellers will be treated as having a permanent establishment in the U.S., leading to a potential tax burden exceeding 50%. However, the IRS has not issued any new guidelines specifically for cross-border e-commerce [4][5]. Understanding the Background: Why is the IRS Focusing on Cross-Border E-Commerce? - The IRS's increased scrutiny is a response to the explosive growth of e-commerce since 2020, which has exposed tax loopholes. The IRS is adapting its enforcement strategies to ensure tax compliance, with significant changes in reporting thresholds for third-party payments [6][7]. Core Questions Breakdown: Do Amazon FBA Sellers Need to Pay U.S. Income Tax? - To determine tax obligations, three concepts must be clarified: permanent establishment, effectively connected income (ECI), and the 1120-F form. 1. The use of Amazon FBA does not constitute a permanent establishment under U.S. tax law, meaning sellers do not need to pay U.S. income tax solely for using FBA services [8][10]. 2. ECI is defined as income connected to a trade or business in the U.S. Cross-border e-commerce activities qualify as USTB, and income from U.S. consumers is considered ECI [11][12]. 3. The 1120-F form is required for foreign companies with ECI, but filing does not necessarily imply a tax payment obligation. It is crucial to file to avoid penalties [13][14]. Seller Action Guide: What to Do If Tax Filings Were Missed? - Sellers who have not filed previously should submit a protective return to avoid penalties. It is advisable to file from the year they began selling on Amazon [15]. - Special considerations apply to sellers from Hong Kong, as there is no tax treaty with the U.S., necessitating compliance with U.S. tax obligations [16]. - Sellers must also remember to fulfill their tax obligations in China, as profits from U.S. orders are subject to Chinese corporate income tax [17]. Conclusion: Strengthening U.S. Tax Oversight, But No Need for Panic - The IRS's enforcement of e-commerce tax compliance is set to increase, but the core compliance logic for Amazon FBA sellers remains unchanged. Cross-border e-commerce compliance is essential for survival in the market [19].