The Danish Tax Tribunal rules in favour of the taxpayer in highly principled matter

The tax controversy team at CORIT Advisory has successfully represented an international company before the Danish Tax Tribunal. The case concerned the question of whether a construction permanent establishment existed or not during the construction of the Copenhagen Metro.

The case concerned several highly principled legal topics. The case was won with reference to interpretation of the applicable tax treaty, including to what extent the revised version of the commentaries to the OECD’s Model Tax Convention has legal value.

The foreign company had been a subcontractor on the building of the Copenhagen Metro and had in turn subcontracted the services performed in Denmark to sub-subcontractors. From time to time, the foreign company had two individuals who were physically in Denmark to supervise – without the actual power to instruct or sanction – the sub-subcontractors.

Based on the presence of these two employees the Danish Tax Authorities claimed that the foreign company was deemed to have a permanent establishment in Denmark due to the “Construction PE”-rule in domestic tax law and the applicable treaty.

In addition, the Danish Tax Authorities claimed that the entire contract sum should be allocated to the Danish permanent establishment.

The Danish Tax Tribunal amended the decision made the Danish Tax Authorities in accordance with our main arguments. Accordingly, the concrete double tax treaty should be interpreted in accordance with para 17 of the commentaries to the OECD’s model tax convention prepared before 2003 (where the guidelines were revised). The Danish Tax Tribunal emphasized that the interpretation of Article 5(2)(g) was amended by the revised version of the commentaries to the OECD’s model tax convention from 2003 and considered the revised commentaries – in accordance with the claim made by CORIT – as material amendments and not mere clarifications.

The Danish Tax Tribunal held that the foreign company did not have a Danish permanent establishment neither due to the company’s supervision of the construction and installation activities performed by sub-subcontractors, nor due to basic PE-rules as the company did not have office facilities at its disposal at the construction sites for the use of the supervision assignment. Based on this clear dismissal of the arguments of the Danish Tax Authorities, there was no reason to rule on the second issue of the possible profit allocation to a PE.

The case shows that unlawful claims made by the Tax Authorities can be overturned using the right arguments. In this case, the legal foundation of the Danish Tax Authorities was severely flawed and directly in contradiction with international doctrine. We are therefore, pleased to see that the Danish Tax Tribunal rules in favor of the foreign company.


Sofie Cecilie Bach

Student Assistant







  • “Kvalifikationen af udenlandske enheder – forsøg på systematisering af nyere praksis fra perioden 2013-2021”. Taxo 2021, no. 7, co-authors: Jakob Bundgaard, Michael Tell.

New Book on Taxation and Value Creation

CORIT members Katja, Louise and Henrik have contributed with the chapter on Danish taxation in the latest book in the European Association of Tax Law Professors International Book Series. The title is “Taxation and Value Creation” and as indicated in the title, the topic is the highly debated subject on determining value creation for domestic and international tax purposes. Read more about the book here.

New Employee Share Scheme for Small New Companies (Start-ups)

As of 1 January 2021 a new employee share scheme applies. This new employee scheme entails that certain new and small companies can award employees with shares, options and warrants up to 50% of the employee’s annual salary while the employee will be subject to taxation as share income (up to 42% taxation) instead of personal income (up to approx. 55% taxation).

It is required that the employee:

1. Do not own more than 25% of the company or have more than 50% of the voting rights in the company (EU requirement)

It is required that that company:

2. Has been active for less than five years (new company)

3. Is an active operating company (i.e. not predominantly consists of passive investments)

4. Did not have more than 50 employees in one of the last two annual accounts (small company)

5. The turnover and balance sheet did not exceed 15 mDKK. in one of the last two annual accounts (small company)

6. Is non-listed (EU requirement)

7. Is not considered to be in difficulty as defined in the Guidelines on State aid for rescuing and restructuring non-financial undertakings in difficulty, for example more than half of its subscribed share capital has disappeared as a result of accumulated losses (EU requirement)

8. The company has not received illegal state aid that has not been repaid (EU requirement)

9. The company using the scheme is considered to receive state aid and must therefore report if the state aid exceeds 500.000 EUR (EU requirement)

The purpose of the new employee shares scheme is to improve the opportunities for new and small companies (start-ups) to use shares as part of their incentive programs and it basically an add-on to the existing Employee Share Scheme in LL § 7 P.