Fast driftssted inden for den digitale økonomi

Steffen B. Jensen & Anne Varming

Student thesis: Master thesis


Abstract: Traditionally, multinational companies operating across borders need a physical place of business to sell products to foreign customers. The rapid development in the digital economy has changed this need. Digital technologies have made it possible for companies to do business with customers geographically located far from them without having physical presence in the country. OECD has highlighted this issue in its BEPS project. The analysis states, that a company operating within the digital economy does not qualify for a permanent establishment under current rules except for a very limited number of cases. A company may hold a permanent establishment, if the company operates a server in the source country. Nevertheless, a server often falls within the exemption of preparatory or auxiliary activities. Software does not qualify for a permanent establishment according to the current rules. However, case law shows how software in certain cases has dictated a permanent establishment in the country where the software is being used. Although a server may be central in the creation of profits, the thesis finds that existing rules for allocation of profits to a permanent establishment barely allocate taxable profits to a server because of the lack of physical locations and personal organized in the source country. Consequently, existing rules invite companies to minimize overall tax costs by placing a company in a low tax jurisdiction using digital technology to operate in a high tax jurisdiction. Finally, the thesis finds that the existing PE definition does not meet the OECD taxation principles of e-commerce (Ottawa principles) demanding for an appropriate solution. Analysing six different solutions the thesis finds a final withholding tax on digital transactions most advisable to address the tax challenges of the digital economy. A final withholding tax meets the Ottawa principles, provides a Kaldor-Hicks efficient solution and seems politically possible to implement. Based on the above, the development demands for a revision of the OECD model tax convention in order to make it capable of taxing profits where the economic activities are performed and hence where the value is created.

EducationsMSc in Commercial Law, (Graduate Programme) Final Thesis
Publication date2015
Number of pages125