Denmark Tax Alert - 4 October 2012
New bill would tighten taxation of dividends
By Kim Wind Andersen and Birgitte Tabbert
The Danish government presented a bill to parliament on 3 October 2012 that contains measures to prevent the circumvention of Danish and foreign taxation. The most significant measures in the bill are as follows:
- Group-related transfers of shares would be treated as dividends subject to dividend taxation where the remuneration for the transfer is either entirely or partly not in the form of shares:
- Where the transferring company is nonresident, the transfer could trigger a 27% Danish withholding tax if the taxation cannot be eliminated or reduced under the EU parent-subsidiary directive or an applicable tax treaty. This measure is proposed to apply as from 3 October 2012. Affected foreign groups investing in Denmark should consider pursuing an alternative exit strategy.
- Where the transferring company is resident in Denmark, the 27% dividend withholding tax would apply if the transferor is unable to receive tax-exempt dividends (i.e. it owns less than 10% of the share capital of the transferring company).
- It would not be possible to use Denmark as a “conduit country.” It is proposed that the 27% Danish dividend withholding tax be imposed on dividends declared on or after 1 January 2013 if the Danish company is not the beneficial owner of dividends received directly or indirectly on subsidiary or group shares and the taxation of the on-declared dividend is not eliminated under the EU parent-subsidiary directive. The withholding tax could be reduced under an applicable tax treaty if the recipient is the beneficial owner of the dividends. Foreign groups using Denmark as a conduit country should consider restructuring before 1 January 2013.
- The Danish tax liability rule that depends on the place of registration would be expanded to include any company registered with the Central Business Registry. The tax liability of a company, other than a public or private limited company, currently depends on the company having its effective place of management in Denmark; under the proposal Denmark would have both place of effective management and place of registration residence criteria for such companies. This measure would apply to income years beginning on or after 1 January 2013.
The bill also has been submitted for public consultation. Further changes to the bill are possible, so affected companies should carefully monitor developments.