The purpose of this thesis is to investigate, if the principle of permanent establishment can be used to tax the digital economy. Traditionally, multinational companies need a physical place of business to sell their products to customers abroad. Digital businesses are growing faster than the rest of the economy, and this trend seems set to continue. The ever-accelerating evolution of the digital economy has changed the needs of businesses, and it is now possible for businesses to conduct business with customers located geographically far from them, even without physical presence in this country. Policy makers currently have difficulties in finding solutions that can ensure fair and efficient taxation in a situation where the digital transformation of the economy is accelerating, and the existing corporate tax regime seems outdated and do not take such developments into account. At first, this thesis will describe the digital economy by illustrating the distinct characteristics of digital business models. This will be followed by a description of the law relating to the concept of permanent establishment from both an international and Danish perspective. Based on this understanding, this thesis will analyze how the current principle of permanent establishment can be used to tax the digital economy. Finally, this thesis will consider whether the principle of permanent establishment can be applied in an alternative manner to reconcile the principle with the digital economy. The analysis will demonstrate the practical difficulties which are encountered when attempting to determine what constitutes a permanent establishment in a given country with regards to a company which operates within the digital economy. In theory, a company’s use of software and servers, and maintenance of a warehouse can qualify as a permanent establishment. However, the overwhelming set of conditions in the OECD Model Tax Convention art. 5 and 7 enables digital companies to structure their business models based on tax considerations, thereby avoiding a permanent establishment. In addition, the analysis shows that the current principles which direct the allocation of profit to a permanent establishment are out-of-touch with value creation in the digital economy.
|Educations||MSc in Commercial Law, (Graduate Programme) Final Thesis|
|Number of pages||76|