1.     Introduction

In a recent ruling, the Danish Tax Board was required to determine as to whether a Christmas tree plantation in Denmark could give rise to a foreign company’s permanent establishment there. That ruling provides very good insights into many interesting and intricate facets of the permanent establishment issues arising from an apparently simple and straight forward transaction.

The above-mentioned ruling, discussed in this article, involved issues such as (i) ‘the functionality test’ – an important prerequisite for existence of a fixed place permanent establishment under Art. 5(1) of the contemporary tax treaties, (ii) PE-exclusion in case of ‘preparatory or auxiliary activities’, (iii) interpretation of a term or expression not defined in a tax treaty (such as: ‘business activities carried on by an enterprise’), and (iv) income characterization: business profits (Art. 7) versus income from immovable property (Art. 6). 

Interestingly, the Danish tax authorities also relied upon a ‘digital economy example’ from the 2017 update to the OECD Commentary on the OECD Model Convention.

The issues and principles analyzed in the above-mentioned ruling are equally relevant in many other situations. Hence, that ruling warrants a detailed analysis.