Ruling on potential PE for sales rep WFH in Denmark but focused on Sweden/Finland & Norway sales
The Danish tax authority has issued a ruling (22 Oct 2021 SKM2021.546.SR) refusing to confirm no Permanent Establishment where a foreign company employed a sales rep, working from his home in Denmark, carrying out sales activities for customers in Sweden, Finland, and Norway.
Emphasis was placed on the fact the employee had a central sales function with an objective of developing the Nordic market and therefore the employees geographical location in the region had an independent value – irrespective of the fact he was not focused on customers in Denmark. This meant that the fact that the employee performed part of his work from Denmark was not solely due to private circumstances. He was considered to be carrying out an income generating activity (sales) from his home office in Denmark such that there could be a Fixed Place Of Business.
The tax authority did not focus on the fact there was no Danish source revenue. Instead the tax authority focused on the economic value to the company of having any employee in that geographic location (i.e. the Nordics). This serves as a clear warning to think more widely than simply giving a risk assessment on whether local revenues are or aren’t being generated. It also appears that tax authorities are increasingly focused on differentiating the business drivers for the employee location from the personal/private circumstances. While it is helpful to have the example that regard would be taken to location choice being purely for personal circumstances, differentiating when the location might have an independent value, especially considering regions not just countries, will be more complex.
Also of interest in the decision:
- The individual was estimated to spend 60% to 70% of his time working away from his home office so “on the road” and only 40% - 30% in Denmark – in other words the fact that the individual spent more time out of the country on the road than his home was not an extenuating factor
- Reference was made to OECD guidance stating that a home could be regarded as available to the enterprise where the enterprise requires the person to carry out the business there by not providing an office in the employing territory (para 18) versus where the enterprise makes an office available in the employing territory state and does not require the employee to work from home (para 19) – this shows the importance of the employment contract in considering what has become an issue of even more interest given the focus on flexi-working post covid.