Denmark - Market Insights

Will strict Danish case law on home office constituting a permanent establishment survive new OECD guidance?

On 19 November 2025, the OECD released updates to the OECD Model Tax Convention and Commentary, including guidance on cross-border remote work in the context of permanent establishment (PE). Compared to the previous update in 2017, the overall changes to the Commentary are moderate; however, on the specific topic of home offices and cross-border remote work, they are substantial. The stated purpose is to provide a common interpretive framework across jurisdictions, although the guidance is described as “relevant but not exhaustive” in the Commentary.

The 2025 update introduced 21 new paragraphs on remote work mainly from a home office, including five illustrative examples, under the heading “Cross-border working from a home or other relevant place” (paragraphs 44.1–44.21). In the OECD’s own description, the changes represent an evolution of existing principles rather than a departure from the established approach and should reflect modern working arrangements.

The 50% rule

According to the updated Commentary, a home office will “generally” not be considered a PE where a person works from home for less than 50% of their total working time during a 12-month period commencing or ending in the relevant tax year. Where an employee works 50% or more of their time from home during that period, a PE may arise, which is to be assessed on the basis of the facts and circumstances of the individual case.

The introduction of a time-based safe harbour rule would be very well received. Multinational groups have long struggled to assess PE risk for employees who divide their working time between different countries, and the absence of any quantitative guidance has made it difficult to establish defensible internal thresholds. However, the rule is not the safe harbour it might initially appear to be. Paragraph 44.8 states that where a person works less than 50% of the time from a home office, this will “generally” not constitute a PE — a wording that carries the implicit premise that exceptions may arise, without providing any specific guidance as to when such exceptions would be relevant.

The commercial reason requirement

The Commentary also emphasises the requirement for an enterprise to have a “commercial reason” for an employee to carry out activities from a home office to create a PE. Where no such commercial reason exists, the home office will not constitute a PE “unless other facts and circumstances indicate otherwise” — without the Commentary offering any guidance as to what those “other facts and circumstances” might be.

A commercial interest will typically exist where the employee’s physical presence in the country supports the enterprise’s business, for example, where the employee:

• meets with customers or suppliers;
• works to build new business relationships;
• provides service, training or support requiring physical presence; or
• collaborates with local partners.

Conversely, where the work performed at the home office is attributable solely to the employee’s personal needs or preferences, employee retention, or the employer’s desire to reduce office costs, there will generally be no commercial interest. Importantly, the mere presence of customers, suppliers or other parties in the same country as the home office does not automatically give rise to a commercial interest.

Example D from the new Commentary illustrates this point with some precision: an employee works 60% of the time from home, with his work directed at customers in his employer’s state, his own state of domicile, and third states. Once per quarter, he visits a single customer in his home state for one day to review results. According to the OECD, the home office does not constitute a PE in these circumstances, as the mere presence of the employer’s customers in the state of the employee does not imply a commercial reason for the employee’s presence there, and the visits to that customer occur on a sporadic and incidental basis.

Whilst the examples in the new Commentary are helpful, the underlying facts are not described in what one could consider sufficient detail and leave considerable room for interpretation as to when the balance will shift.

Danish case law

Danish case law has generally been strict and does not appear to have accounted for the fact that, in the post-COVID-19 era, a greater proportion of work is performed from home. According to guidance issued by the Danish Tax Agency, the following four factors may indicate the existence of a PE:

• the employee has no other fixed workplace available;
• the enterprise accepts that the employee performs part of the work from home, whether explicitly or implicitly;
• the work performed from the home office does not arise sporadically but is planned or can be planned; and
• it may be considered to be in the employer’s interest that the business activity is carried out from the home office in Denmark.

According to case law, the Danish interpretation of when a home office constitutes a PE has been regarded as stricter than under the OECD Commentary and, according to previous case law, the Danish Tax Agency has found that a PE may arise even though the work from the home office has been below 50%.

Danish case law on PE going forward

As mentioned, the Danish Tax Agency interprets the PE rules in accordance with the interpretive principles set out in the OECD Commentary on the Model Convention, and therefore the latest 2025 OECD update should have a direct impact on Danish practice.

The 50% “rule” does not constitute a safe harbour, given that the Commentary explicitly acknowledges that exceptions may arise and provides no clear guidance as to when this is the case. Notably, existing Danish case law suggests that working from a home office for less than 50% of working time may easily give rise to a PE if the slightest work can be considered related to the core business of the employer. It will therefore be of considerable interest to observe whether the Danish Tax Agency takes the position that there is no material conflict between prior Danish case law and the new Commentary.

The examples given in the Commentary showing the emphasis on the commercial reason for working from the home office to establish a PE are helpful but still leave room for interpretation. The Commentary should at least loosen the strict approach that has characterised Danish case law to some extent.

To illustrate potential areas of change, where the Danish Tax Agency has previously, as a default, tended to disregard the argument that home office work was established primarily in the interest of the employee rather than the employer — particularly where the employer had customers in Denmark — the new Commentary should have a direct impact on this approach. The Commentary states explicitly that a PE requires a link between the particular employee’s presence at home and the actual carrying on of the employer’s business in that country. It could be argued that the Danish Tax Agency previously considered the employee’s presence enough if the employer had any commercial interest in the country. This, of course, applied only when the work was not entirely of a preparatory and auxiliary nature. Furthermore, any visits to customers have previously been a red flag. In light of the new Commentary, the Danish Tax Agency should, going forward, place greater emphasis on the link between the employee and the actual business activity carried out in Denmark, and should consider a limited number of customer visits to be of an intermittent and incidental nature that will not give rise to a PE. The mere fact that customers or suppliers happen to be present in the same country as the employee’s home office is not, in itself, sufficient to establish a PE according to the Commentary.

In addition, the Commentary should have a direct impact on one of the factors that is featured in Danish administrative guidance, that is, whether the employee has another fixed workplace available. The Commentary now makes it clear that an employer’s desire to reduce costs does not constitute a commercial reason. Therefore, it should not be in line with the Commentary to continue treating the absence of an alternative fixed workplace as a factor weighing in favour of a PE.

However, given the reference to “other facts and circumstances” that may otherwise indicate a PE, room for interpretation remains and with it, the possibility that the Danish Tax Agency will maintain a relatively strict stance.

The central question is whether the commercial reason requirement and the 50% “rule” will give rise to a more lenient assessment in Denmark of whether a PE exists going forward, or whether the existing Danish “four-factor test” still will be regarded as falling within the scope of the Commentary’s interpretive flexibility, without producing materially different outcomes in case law. Whilst we expect the Danish Tax Agency to maintain a strict approach to PEs, the new Commentary should influence Danish case law going forward, nudging the assessment in a more favourable direction for employers. This will be seen in the years ahead, and future developments in Danish PE case law should be monitored closely.