Fast driftssted: Virksomhed af forberedende eller hjælpende karakter

Abstract

The existence of a permanent establishment (“PE”) is a necessary condition for a foreign business to be tax liable to Denmark. Denmark has not had a general PE definition until 1. January 2021 where the definition of the concept PE was included in Danish tax law. What is meant by PE is determined according to practice in accordance with article 5 of the OECD Model Tax Convention and the
comments. In the 2017- edition of the OECD Model Tax Convention, the concept of PE was changed in certain points that explicitly regulate what is meant by PE.
The changes entails both material changes to the state of the law as well as clarifications of already existing applicable law. The wording of the exception provision in article 5, paragraph 4 in 2017 edition of the OECD Model Tax Convention has been changed. It is evident from the provision that certain activities with character of preparatory or auxiliary activities can be carried out in Denmark without the existence of a PE for the foreign enterprise. The concept "preparatory or auxiliary" character is thus an essential condition for a foreign enterprise in Denmark to avoid Danish taxation. The thesis’ first purpose is to analyze which criteria are decisive for an activity to be considered of preparatory or auxiliary character according to the applicable law. The conclusion is that the decisive criterion in the assessment is whether the fixed place of business in the country of work constitutes an essential and significant part of the enterprise's business as a whole and whether the purpose of the fixed place of business in the country of work is identical to the general purpose of the whole enterprise. The comments to the provision, as well as previous Danish case law, mentions other criteria’s that can be used in relation to the distinction between preparatory or auxiliary activities or core activities, cf. Appendix 1. Criticism is directed at the fact that the 2017 changes in the OECD Model Tax Convention gives ground for a subjective assessment of the criteria. The thesis’ second purpose is to analyze when an activity of preparatory or auxiliary nature constitutes a PE for a foreign enterprise anyway. It can be concluded that it will not be activities of a preparatory or auxiliary character, if the activities in the country of work are “complementary functions that are part of a cohesive business operation" run by the enterprise itself or by a "closely related party” and carried out through the fixed place of business in Denmark. The purpose of the anti-fragmentation rule is to prevent enterprises from abusing the exception by
fragmenting their activities and claiming that the individual activities are of a preparatory or auxiliary nature and therefore not constituting a PE.