Virtual Reality & Permanent Establishment exposure.

Humans have always enjoyed imagining things. Even the movies were silent once to now a 3-D, 4-D or even 7-D. The entertainment in itself has changed multi-folds over a period of time and with multi-dimensional effects. Augmented reality or a virtual reality is a kind of a dream of a person which he can make others see through an electronic device.

Augmented reality is defined as a technology that superimposes a computer -generated image on a user's view of the real world, thus providing a composite view. Virtual reality is defined as the computer based simulation of a three dimensional image or an environment that can be interacted with in a seemingly real or physical way by a person using special electronic equipment such as a helmet with a screen inside or gloves fitted with sensors.

A leading furniture brand based in NewYork called Natuzzi has an augmented reality based showroom in New York city. The customers can move around virtual furniture to see how the same would look in their house.

From the taxation standpoint, primary concern is whether augmented reality based showrooms, virtual reality devices that are used to display products can constitute permanent establishment?

One possible view is that Augmented reality and virtual reality are no different from a visual journey through a website. The transaction resembles more or less buying products/services online. Interestingly, storage of goods in a virtual space could be termed as storage in the digital world. Another view could be the activities done by Augmented reality or Virtual reality devices could be considered as preparatory and auxiliary activities.

Significant economic presence and the principles which are evolved therewith require special attention to be given here as well.

There have been several rulings wherein it has been held that websites does not constitute permanent establishment. Some inference can be drawn from there to ascertain the Permanent establishment exposure.

If the Augmented reality/virtual reality devices are only meant to display the goods in order to convince the customer to purchase the product, it still can be saved from the Permanent establishment exposure. However, if the Augmented reality/Virtual reality devices are helping the non-resident enterprise to complete and conclude the sale function, Permanent establishment exposure could potentially be required to be examined.