The Danish Tax Council has issued a new ruling regarding the potential existence of a permanent establishment in Denmark. This ruling provides insights into the tax status of foreign companies with employees working from home in Denmark and engaging with potential customers. The company in question sought confirmation that the activities in Denmark would not result in the establishment of a permanent establishment. The full ruling is published by the authorities under SKM2025.23.SR.
Background
The applicant was a foreign limited liability company that produced and sold goods to consumers. The company had one employee who worked as a consultant on ferries sailing to and from Denmark. This employee performed administrative work from their home in Denmark one day per month. The employee was fully tax-liable in Denmark.
The employee’s primary duties involved marketing and demonstrating products to ferry staff and customers. The company maintained no other physical presence or operations in Denmark.
Definition of a permanent establishment
The concept of a permanent establishment is defined in Paragraph 2 (2-6) of the Danish Corporate Tax Act. According to Paragraph 2 (2), a permanent establishment is determined by the following conditions:
- The existence of a place of business
- That the place of business is fixed
- That the foreign entity conducts its business, fully or partly, through the fixed place of business
If a company has a permanent establishment in Denmark, it becomes subject to corporate tax of the allocated income.
Furthermore, Paragraph 2 (1)(a) of the Corporate Tax Act assumes that a company is subject to limited tax liability if it:
- Engages in business activities in Denmark
- Has a permanent establishment in Denmark, including within the 12-nautical-mile limit from the coast.
If a company conducts business onboard a ship registered in Denmark, it is considered to have a business activity with a permanent establishment in Denmark.
Fixed place of business without a permanent establishment
Activities of a preparatory or auxiliary nature do not necessarily constitute a permanent establishment, even if they are carried out from a fixed place of business, according to the Danish Corporate Tax Act. A similar provision exists in the OECD Model Tax Convention.
The Danish Tax Council’s ruling
The company’s place of business in Denmark was solely for advertising and marketing purposes. The employee did not have a fixed office or any other workplace onboard the ferries but worked exclusively in the ferry’s shop.
A home office may constitute a place of business if it is effectively made available to the company. The decisive factor is whether the home office can be considered at the company's disposal. The Tax Council emphasized that the employee's residence in Denmark did not provide the company with a competitive advantage.
The Danish Tax Council concluded that the ferries and the employee’s home office could be considered fixed places of business. However, the employee’s work was deemed to be of a preparatory or auxiliary nature, meaning it did not trigger tax liability. Additionally, it was determined that the 12-nautical-mile limit was not relevant in this case.
The employee's work was not considered to extend beyond a marketing function, despite direct customer contact and interaction with the ferry company's staff.
A case-specific assessment
The ruling establishes that direct contact with potential customers does not necessarily result in a permanent establishment or corporate tax liability in Denmark. Whether the activities performed lead to the establishment of a permanent establishment, and thus the obligation to file a tax return in Denmark, depends on a case-specific assessment.
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