A Dutch BV can acquire a German tax presence without anyone ever having decided to establish one. No German company is incorporated, no branch is entered in the commercial register, no lease is signed. A sales director lives in Düsseldorf and works the German market from there. A managing director keeps a flat in Munich and takes the group’s decisions from it during the week. An installation crew stays on a customer’s site for eight months. Each of those facts, standing alone, has been enough to create a German permanent establishment and the filing duties that follow it.
The exposure is almost never identified when it arises. It surfaces in the first examination, or in a wage tax audit, or when a social security enquiry about one employee prompts a question about who that employee actually works for. By then several assessment periods are open at once. What follows is the shape of the analysis: the two domestic tests that create the exposure, the treaty that narrows it, and the three separate taxes a finding brings with it.
Two domestic tests, and a treaty on top of them
Germany applies its own definitions first and asks about the treaty second. Section 12 of the Abgabenordnung defines a Betriebstätte as any fixed place of business or facility serving the activity of an enterprise, and then lists examples: the place of management, branches, offices, factories and workshops, warehouses, sales and purchasing outlets, extraction sites, and building or assembly work. Section 13 defines a ständiger Vertreter, a permanent representative, as a person who conducts the business of an enterprise on a sustained basis and is subject to its instructions.
Either test is sufficient on its own. Section 49(1) number 2 letter a of the Einkommensteuergesetz treats business profits as German source income where a permanent establishment is maintained in Germany or a permanent representative has been appointed there. The disjunction is the part that catches people. A company with no premises of any kind in Germany can be inside the domestic charge through the second limb alone.
The treaty then narrows the domestic result rather than replacing it. Article 5 of the convention of 12 April 2012 between the Netherlands and Germany, in the consolidated text now in force, carries the familiar definition, with preparatory and auxiliary exclusions and an agency test built on the authority to conclude contracts in the name of the enterprise and the habitual exercise of that authority. The order of the two questions is not a matter of preference, and the German administration sets it out expressly in its administrative principles of 18 June 2026 on the permanent establishment concept: whether sections 12 and 13 are met is examined first, and the treaty is examined second, only to see whether it restricts a taxing right that domestic law has already created. Where the domestic test is met and the treaty test is not, Germany’s taxing right is restricted, but the German obligation to explain that position does not disappear. The relief has to be claimed and evidenced, and the file is read rather than the conclusion.
Where the two definitions diverge
The divergence is the practical risk, because it is invisible from a treaty summary. Section 12 of the Abgabenordnung has no preparatory or auxiliary carve-out at all. A warehouse is listed in the section as an example, without qualification. The treaty exclusion, meanwhile, is narrower than most summaries still describe it. In the wording in force since 31 July 2022, a facility used solely for the storage, display or delivery of the enterprise’s own goods falls outside article 5 only on condition that the activity is of a preparatory character or has the character of an auxiliary activity. That condition used to attach only to the residual category and to combinations; it now attaches to every item on the list. A Dutch company holding stock in a German logistics site therefore has a permanent establishment under German domestic law and, on the same facts, may or may not have one under the treaty, and the answer turns on what the stock is actually there to do.
The agency limb diverges in the same direction and further. Section 13 of the Abgabenordnung reaches a person who habitually concludes contracts, who merely mediates them, or who solicits orders. The treaty agency test is built on the authority to conclude contracts in the name of the enterprise, and an independent agent such as a broker or commission agent acting in the ordinary course of its own business is excluded. A commercial agent who never signs anything and only brings in orders is a permanent representative domestically and, on the treaty wording, frequently is not an agency permanent establishment.
That gap has two consequences. Trade tax and corporate income tax are both listed among the German taxes the treaty covers, so the treaty limit applies to both. But registration duties, the wage tax analysis and the burden of demonstrating the treaty position all follow the domestic definition, and they arrive first. The duty to notify the opening of a Betriebstätte to the municipality on the official form, which section 138 of the Abgabenordnung imposes on whoever opens one, is triggered by the domestic test and not by the treaty one.
Building and assembly: six months at home, twelve under the treaty
Section 12 of the Abgabenordnung treats building work and assembly work as a permanent establishment where a single project lasts longer than six months, where several simultaneous projects together exceed six months, or where projects following one another without interruption exceed six months. Article 5 of the treaty sets twelve months, and a building site or a construction or installation project is a permanent establishment only if its duration exceeds that period.
The aggregation rule is what turns a series of ordinary contracts into a finding. A Dutch installer running three sequential jobs of three months each for different customers in the same region has, on the domestic wording, crossed the six month line without any single contract approaching it. Whether the treaty threshold is also crossed depends on how the projects are counted, and that question is decided on the facts of the sites, not on the invoicing.
In one mandate we reviewed a Dutch technical contractor whose German work had been organized around a rule of thumb that no site should run beyond six months. The rule was applied to each contract. Nobody had aggregated across contracts, and two of the three years under review were plainly over the line on the domestic test.
The home office question, and why it is not settled by a title
A home office in Germany does not automatically create a permanent establishment, and a job title does not settle the question either. The test under section 12 of the Abgabenordnung is whether there is a fixed facility serving the enterprise’s activity over which the enterprise holds more than temporary power of disposal, and the German administration’s published position on employees working from home is that the work of an employee in a domestic home office as a rule creates no permanent establishment of the employer, because the employer typically has no sufficient power of disposal over the employee’s private rooms.
That position is explicit that several of the facts commonly treated as decisive do not, by themselves, confer such power. Bearing the cost of the home office and its equipment does not. A lease of the employee’s rooms, with the employee as landlord and the employer as tenant, regularly does not. Nor does the absence of any alternative workplace offered to the employee. Even a contractual right to enter the rooms in order to examine transactions, books and records is insufficient, and remains insufficient where the employer makes wide use of it. What can change the answer is a genuine entitlement to put the space to other use, for example a right to send other employees into the rooms, or a general right of access going beyond inspections of that kind.
The management case is different in kind and much harder to argue away. The place of management is the first example listed in section 12, and a place where management is exercised is the first item in the treaty’s own list as well. A place of management establishment does not require a fixed facility over which the enterprise has power of disposal at all, and the administration accepts that the place of management can sit in the private rooms of the person running the business, the test being where the acts of day to day management are in fact carried out. Management activity will also rarely qualify as preparatory or auxiliary, so the exclusions do not rescue the position. A Dutch BV whose sole director takes the substantive decisions from a residence in Germany does not merely risk a German permanent establishment. It risks a German place of effective management, which under article 4 of the treaty decides residence itself, a company resident in both states being treated as resident only where its place of effective management is situated.
That is a materially worse outcome than a branch. A permanent establishment splits the profit. A shift of effective management moves the company.
Three taxes follow, not one
Corporate income tax comes first. A Dutch BV with a German permanent establishment is subject to limited corporate tax liability on the profit attributable to it. The rate in section 23 of the Körperschaftsteuergesetz is 15 per cent for assessment periods up to 2027, and the same provision now sets a staged reduction to 14 per cent in 2028, 13 in 2029, 12 in 2030, 11 in 2031 and 10 per cent from 2032. The solidarity surcharge under section 4 of the Solidaritätszuschlaggesetz adds 5.5 per cent of the amount it is charged on.
Trade tax comes second and is often forgotten in a Dutch review, because there is no Dutch equivalent. Section 2 of the Gewerbesteuergesetz charges every standing trade so far as it is carried on in Germany, and a trade is carried on in Germany so far as a permanent establishment is maintained there for it. Section 11 sets the rate of assessment at 3.5 per cent of the trade income, and the allowance of 24,500 euros in the same section is available to individuals and partnerships, not to companies. There is no single national figure for what follows, because section 16 leaves the multiplier to each municipality entitled to levy the tax. The statute supplies only a floor, 280 per cent where the municipality has not determined a higher one, and most have.
Wage tax comes third, and on different criteria again. Section 38 of the Einkommensteuergesetz defines a domestic employer as one with a residence, habitual abode, place of management, seat, permanent establishment or permanent representative in Germany within the meaning of sections 8 to 13 of the Abgabenordnung. Section 41(2) then defines the wage tax establishment as the business or part of the business of the employer in which the remuneration relevant to the withholding is determined. The two do not always land in the same place, and the withholding duty can arise on facts that would not by themselves settle the corporate question.
How it is usually discovered
The typical route is not a corporate audit. It is the employee. Article 14 of the treaty allocates employment income to the state of residence where the employee is present in the other state for no more than 183 days in any twelve month period beginning or ending in the tax year concerned, the remuneration is paid by or on behalf of an employer who is not resident there, and the remuneration is not borne by a permanent establishment the employer has there. Each of those three conditions is a question the German authorities are entitled to ask, and the third one puts the company’s own permanent establishment status directly in issue.
Social security follows a separate set of rules and a separate timetable, which is why the two often disagree. An employee can be correctly covered in one country and correctly taxed in the other, and the paperwork that establishes the first is regularly produced as though it settled the second. It does not.
The second common route is the customer. German counterparties ask for exemption certificates and tax numbers as a matter of routine procurement, and the answers given in that correspondence become part of the record long before any authority reads them.
What the file needs to contain before anyone asks
The defensible position is built from documents that already exist, provided they are consistent. Employment contracts should state the place of work and match what the employee actually does. Travel and time records should support the day count relied on, at the level of the individual, not the department. Agency and distribution agreements should describe authority in terms that match the conduct, since a contract saying the agent may not bind the company is worth little where the company has never rejected an order.
Where a German permanent establishment does exist, the answer is registration and attribution, not silence. The profit attributable to it is determined by treating the establishment as a separate and independent enterprise and allocating to it the functions, assets, risks and capital that belong to it, which is the approach section 1(5) of the Außensteuergesetz writes into German law. A company that files late and attributes nothing invites the estimate of the tax base that section 162 of the Abgabenordnung not only permits but requires where the authority cannot establish the figures itself. Where no establishment exists, the treaty position should be documented at the time, in the file, with the facts that support it. A position reconstructed four years later from memory is worth less than the same position written down when it was true.
The structural point is that none of this is decided by intention. A Dutch BV that never resolved to open in Germany can be taxed there because a person worked, a warehouse held stock, or a site ran two months longer than planned. The German tests are drawn wider than the treaty ones, they operate on facts the company itself creates, and they are read years after those facts were recorded by someone who was not thinking about tax.
This article is informational and does not constitute tax, legal or investment advice. Each engagement is subject to scope and applicable regulation.