Danish National Tax Tribunal - Decision on Beneficial Ownership

John Abrahamson Director International Tax at Sheltons. International Tax Lawyer in Structured Finance, Mergers and Acquisitions

Danish National Tax Tribunal - Decision on Beneficial Ownership

The Danish National Tax Tribunal issued a decision on 16 April 2010 on the beneficial ownership of dividends paid by a Danish company to its Luxembourg holding company.

Denmark can apply 28% withholding tax on dividends paid to non residents. This is eliminated if paid to a foreign parent company (at least 10% ownership of the Danish company), and a Double Tax Agreement (DTA) would require Denmark to reduce or eliminate withholding tax. DTAs generally require the foreign company to be the beneficial owner of dividends for treaty benefits to apply.

The authorities argued that the Luxembourg company was not the beneficial owner, as it did not carry out an active business, and had no real power over disposition of the dividends.

The Tribunal held that the Luxembourg company was the beneficial owner, principally because the dividends were not paid on to the foreign funds, but were loaned back to the Danish subsidiary.

The Tribunal advised that a conduit company may be disregarded as the beneficial owner if it has very narrow powers to act in respect of the disposition of the dividends. This would, however, not be the sole factor in a decision to disregard.

A future decision on the powers required to satisfy the beneficial ownership test is awaited.