Beneficial Ownership: Final Judgments In "Danish Cases" - Interest

• Published date: 05 September 2023
• Subject Matter: Litigation, Mediation & Arbitration, Tax, Trials & Appeals & Compensation, Tax Treaties, Withholding Tax
• Law Firm: Kromann Reumert
• Author: Mr Arne Ottosen, Birgitte Broholm Hasselriis and Lenni Hangaard Jensen

On 4 May 2023, the Danish Supreme Court gave final judgments in the last two of the so-called "Danish Cases". Ruling on interest payments and accruals to group companies in Sweden and Luxembourg, the Supreme Court held in favour of the Danish Ministry of Taxation.

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. On 9 January 2023, the Supreme Court gave judgment on dividend withholding tax.

Read more: Beneficial ownership: Final judgments in "Danish cases" - dividends

CJEU rulings

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 the beneficial ownership doctrine not only applies in international tax law but also in EU law.

The CJEU judgment in the dividend withholding cases is available here: Joined Cases C-116/16 and C-117/16.

The CJEU judgment 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 judgments and the Danish High Court judgment in 2021, the Supreme Court on 4 May 2023 gave final judgments in the interest cases.

Supreme Court judgments

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

Before going into the specific cases, the Supreme Court reiterated its judgment of 9 January 2023 on dividends. 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 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 that follow from the double tax treaties". In the revised commentaries from 2003, this is clarified and specified, and it is mentioned, among other things, that it would not be in accordance with the object of...