PE case law

Netherlands: District Court confirms significant PE role in profit attribution analysis

On 13 February 2026, the District Court of North Holland published its decision in cases HAA 24/713 to 24/715, considering profit attribution to a foreign permanent establishment (PE).

The case concerned a Dutch company, active in the design, sale and rental of modular bridges, that carried out a long-running infrastructure project abroad through a PE. The dispute focused on whether the profits attributable to the PE and to be exempted from Dutch corporate income tax had been appropriately determined and, in particular, whether the PE performed routine activities or played an essential and value-creating role in the group's business operations.

The taxpayer had claimed the exemption on its tax return based on a profit split, supported by the fact that the head office and the PE were engaged in highly integrated business activities and that the PE's functions were essential, particularly in relation to the operational execution and delivery of the project. The tax authorities, by contrast, argued that the PE carried out only routine and supportive activities and that the transactional net margin method (TNMM) with a net cost-plus markup should therefore be applied, resulting in a lower profit allocation to the PE.

The court agreed with the taxpayer, finding that the PE's activities were significant and closely integrated with those of the head office. Given the essential and value-creating role of the PE and the interdependence of the functions, assets and risks of the head office and PE, the court concluded that a profit-split method was appropriate and that the application of the TNMM would not adequately reflect the economic reality of the business.

Other PE developments

Netherlands: Dutch tax authorities clarify definition of a PE for Pillar Two purposes

On 26 February 2026, the Dutch Tax Authorities' Pillar Two knowledge group published its position (KG:911:2026:1) on the interpretation of a "treaty PE" for purposes of the Dutch Minimum Tax Act 2024, which implements the Pillar Two rules. The guidance clarifies when a fixed place of business qualifies as a "type (a)" PE (i.e., treaty PE) under Article 1.2(1) of the Act, which provides a definition similar to a treaty PE under the Organisation for Economic Co-operation and Development (OECD) Model Rules.

The Dutch authorities emphasize that, for purposes of the Dutch Minimum Tax Act, it is not sufficient that a source jurisdiction has taxing rights over the income attributable to the PE under a provision comparable to Article 7 of the OECD Model Tax Convention. The income must also be taken into account on a net basis in the source state's tax system in a manner comparable to the taxation of resident entities. It is therefore not sufficient for the income to be subject to tax: it must actually be taxed.

If income attributable to a place of business is not included in a tax assessment in the source state, or is not subject to net income taxation, the place of business will not be considered a "type (a)" PE (i.e., treaty PE) for the Dutch Minimum Tax Act, even if a PE would exist under domestic law or treaty interpretation.

Germany issues draft PE guidance updating long-standing administrative practice

On 13 February 2026, the German Federal Ministry of Finance (BMF) released a draft circular updating the administrative principles on the existence of a PE under both domestic law and tax treaties. The draft is intended to replace the current guidance on PEs and reflect recent German Federal Fiscal Court (BFH) case law as well as developments under Article 5 of the OECD Model Tax Convention. A key message of the draft circular stresses that the PE analysis must be based on an overall assessment of the facts, with individual criteria (such as fixed place of business, degree of permanence and power of disposal) not assessed in isolation.

The draft circular explicitly adopts a two-step approach: first, determine whether a PE exists under German domestic law and, second, assess whether a tax treaty restricts Germany's taxing rights. Though the BMF has noted broad alignment between domestic and treaty concepts, it has also highlighted important differences, including the absence of a preparatory or auxiliary activity exception under domestic law.

The guidance includes practical examples covering, among other things, home office arrangements, activities carried out at third-party premises, service and management companies, internet influencers and dependent agent PEs, largely aligning the German tax authorities' views with recent OECD Commentary.

The circular was subject to consultation through 13 March 2026.