1. Introduction

In a recent binding ruling (dated 26 September 2017), the Danish Tax Board opined that a foreign company’s construction activities in Denmark for the aggregate period of merely 36 weeks (divided in two parts: 30 weeks and 6 weeks) gave rise to a construction permanent establishment. The relevant provision in the applicable tax treaty was similar to Art. 5(3) of the OECD Model Convention. It stipulated 12-month threshold for existence of a construction permanent establishment. For that purpose, however, the Danish Tax Board also took into account a 5-month ‘non-activity period’ occurring after completion of the first part of the activities (30 weeks) and before commencement of the second part of activities (6 weeks). The Danish Tax Board treated that non-activity period as ‘temporary suspension of activities’, and included it in the aggregate duration of the activities. On that basis, the Danish Tax Board concurred with the Danish tax authorities that the foreign company’s ‘activities’ exceeded the 12-month threshold for existence of the construction permanent establishment.

With due respect, and for the reasons explained in this article, the Danish Tax Board’s approach and conclusion seem difficult to reconcile with a tax treaty provision similar to Art. 5(3) the OECD Model Convention.

In this article, we would take a close look at the relevant facts, as well as the approaches of the Danish tax authorities and the Danish Tax Board. It would be helpful to also take into account the relevant judicial developments in other jurisdictions, particularly Belgium, Germany, the United States, and India.