Beneficial Ownership: Final Judgements In "Danish Cases" - Dividends

• Published date: 11 September 2023
• Subject Matter: Tax, Tax Treaties, Withholding Tax
• Law Firm: Kromann Reumert
• Author: Mr Arne Ottosen, Lenni Hangaard Jensen and Birgitte Broholm Hasselriis

On 9 January 2023, the Danish Supreme Court gave final judgements in the first two of the so-called "Danish Cases" to reach the Court. Ruling on dividends distributed to holding companies in Luxembourg and Cyprus, the Supreme Court held in favour of the Danish Ministry of Taxation. Read more below.

The focal point in the "Danish Cases" is the "beneficial owner" quality of EU resident companies receiving dividend or interest payments or accruals from their Danish resident group companies, and whether the Danish companies should have withheld tax on such payments and acted negligently in not withholding.

In February 2019, the Court of Justice of the European Union (CJEU) ruled in several joined cases regarding the Danish withholding tax regime for dividends and interest paid to companies in other EU Member States. The CJEU ruled that a general prohibition of abuse exists in EU law and must be applied by the Member States, and that beneficial ownership is not only an international tax law but also an EU law notion.

The CJEU judgement in the dividend withholding cases is avaliable here: Joined Cases C-116/16 and C-117/16

The CJEU judgement in the interest withholding cases is available here: Joined Cases C-115/16, C-118/16, C-119/16, C-299/16

Following the CJEU's judgements and the 3 May 2021 Danish High Court judgements, the Supreme Court gave final judgements in the dividend cases on 9 January 2023.

The Supreme Court judgements

The Supreme Court heard two cases and, accordingly, ruled on two sets of facts.

Before going into the specific cases, the Supreme Court stated that the notion of "beneficial ownership" must be understood in light of the OECD Model Convention, including the 1977 commentaries regarding the countering of abuse. According to these commentaries, the notion is intended to ensure that double tax treaties do not aid in tax evasion or avoidance through "artifice" or "artificial legal constructions", which makes it possible to "benefit from both the advantages following from certain national legislation and the tax exemptions, which follows from the double tax treaties". In the revised commentaries from 2003, this is clarified and specified, and it is among other things mentioned that it would not be in accordance with the object of the treaty to grant a tax exemption if a person, in another way than as an agent or intermediary, merely functions as a "conduit" for another person who actually receives the income in question.

One of the cases...