Tax Consequences of Establishment and Operation in Denmark

Kristian Erik Johansen & Jonas Søren Due Haustrøm

Student thesis: Master thesis


In this thesis we seek to find out if the Danish tax law regarding permanent establishments in Denmark are compliant with the restrictions set by EU, and whether there is any differences in the income statement and the tax treatment in a permanent establishment, PE, compared to a subsidiary, since the Danish legislation aims to treat the two forms of secondary establishment alike.
The question in this thesis is interesting, because the financial world is getting smaller. Multinational companies is more common than ever and in order to establish a new unit in a foreign country the company has to take into account the tax treatment in the country in which it wants to make a secondary establishment. Of course the tax treatment is only one part of the things the company needs to take into account. Politics, labour force and stability are examples among other things.
In order to be capable of answering the problem faced in this thesis, we have described the Danish tax law for companies, along with the protective rules in the Danish legislation. We have compared the legislation with the freedom of movement of capital and the right of establishment as adopted by EU in The Treaty On The Functioning Of The European Union. We have found out that some of the protective rules in Denmark might violate the treaty's right of establishment, but for now the rules must be perceived as the current law, as there haven’t been any verdicts that contradicts these rules.
The Danish Corporation Tax Act (Selskabsskatteloven) § 2, stk. 2 says, that the income for a PE has to follow the principles in OECD’s Model Convention With Respect To Taxes On Income And Capital. Therefore, the profit has to be the profit that a separate and independent enterprise engaged in the same or similar activities could achieve. In other words, the profit of the PE has to follow the principles, as if it were a independent company. To see if that is in fact the consequences of the Danish tax law, we compare the income statement of a subsidiary with the income statement of a PE engaged with the same activities.
Finally, we seek to answer whether the possibilities of extracting the profits from a PE are more favorable than extracting the profits from a subsidiary.

EducationsMSc in Auditing, (Graduate Programme) Final Thesis
Publication date2016
Number of pages123