Tax Treaty Case Law around the Globe 2023

1. Introduction

The case of the Hungarian Supreme Court (Kúria) discussed in this chapter (Case Kfv. V.35.285/2022/8) demonstrates the difficulty of determining whether a server constitutes a permanent establishment (PE) for the operator of a website. The server PE is not a standalone type of PE but falls back on the criteria of the classic physical PE concept. The latter requires that a fixed place of business be at the disposal of the non-resident enterprise in the source state. This is particularly difficult to establish in the case of a server where it has to be decided whether the physical hardware of the server is at the disposal of the enterprise operating the website stored on the server. Another difficult question concerning server PEs is whether the functions of the server are of a preparatory or auxiliary character from the perspective of the core business activity of the enterprise concerned. The forthcoming discussion highlights these issues.

2. Facts of the case

The subject matter of the underlying case concerns several items of income on which the tax was not properly declared and paid. First, the taxpayer (the plaintiff), who is a natural person, realized income from t...