PE tax rulings

Denmark rules on the existence of a PE for inventory maintenance

On 6 March 2025, the Danish Tax Council assessed in ruling SKM2025.124.SR whether a Swiss company had established a permanent establishment (PE) in Denmark under the Denmark-Switzerland tax treaty. The Swiss company was engaged in centralized procurement and the supply of fuel and related additives to sales companies operating service stations and convenience stores in Denmark. It owned inventory in Denmark under certain delivery terms but did not operate the warehouse itself. Additionally, it received limited procurement-related support from an employee of a related Danish company, but this individual had no authority to negotiate or conclude contracts.

The central issue was whether these activities constituted a PE in Denmark. The Danish Tax Council concluded that the Swiss company did not have a PE. This determination was based on the limited nature of its activities, which were confined to owning inventory and receiving logistical assistance. According to the Denmark-Switzerland tax treaty, a storage facility used solely for storage, display or delivery does not constitute a PE. Because the Swiss company's use of the Danish warehouse falls within this exemption, it does not meet the threshold of a fixed place of business through which core business operations are conducted.

Furthermore, the Dependent Agent PE does not apply, as the Danish employee's role was limited to procurement support. The employee did not engage in revenue-generating activities and had no authority to negotiate or conclude contracts on behalf of the Swiss company. As a result, this did not meet the criteria for a Dependent Agent PE.

The Danish Tax Council referenced prior rulings, including a case involving an Irish company deemed to have a PE in Denmark due to the presence of an anti-fragmentation rule in the Denmark-Ireland tax treaty. This rule prevents companies from artificially splitting activities to avoid PE status. However, because the Denmark-Switzerland tax treaty does not include such a provision, the Swiss company's activities fell within the treaty's preparatory or auxiliary exemptions, exempting it from having a PE in Denmark.

PE case law

Indian court rules that a subsidiary does not automatically create a PE

On 21 February 2025, the High Court of New Delhi ruled on whether an Indian subsidiary's installation of equipment supplied by its Finnish parent company constituted a PE under Indian tax law. The case examined whether the subsidiary's activities in India created a taxable presence for the foreign parent, despite operating under separate contracts.

The Finnish parent company supplied Global System for Mobile Communications (GSM) equipment to Indian telecom operators. An Indian subsidiary provided installation activities through independent contracts with local telecom companies. The Indian tax authorities argued that the subsidiary effectively acted as an extension of the parent company, functioning as its virtual projection and thus creating a PE in India.

However, the High Court rejected this interpretation, emphasizing that PE determination must be based on objective evidence and treaty standards rather than assumptions or perceptions. The court found that the Indian subsidiary operated as an independent entity, did not conclude contracts on behalf of the Finnish parent company and was not under its direct control. The tax authorities' claims of "virtual projection" and "functional integration" were dismissed, as the subsidiary's onshore installation activities remained contractually distinct from the offshore supply agreements.