Conduit companies - Several cases in the pipeline(Taxwatch (Tax news in english))
22-09-2010 07:20
Af
Karsten Gianelli
The Danish Tax Authorities have for some years argued that outbound payments of dividends etc. from Danish companies to a holding company in a another EU country or a treaty country cannot claim exemption from Danish withholding taxes pursuant to the EU regulations or the tax treaty if the receiving holding company is a conduit company receiving the payments on behalf of a beneficial owner located in a non-treaty jurisdiction outside the EU.
However, the Danish Tax Authorities have not yet been able to convince the Danish National Tax Tribunal or the Danish courts of this conduit company argument.
We refer to the comment on the most recent case on this issue in tax:watch no 8 2010 which concerned dividends paid by a Danish subsidiary to its Luxembourg holding company. The Luxembourg holding company was owned by a number of foreign equity funds all located in jurisdictions with no tax treaty with Denmark. The Tax Authorities had ruled that the Luxembourg holding company was a conduit company and that the dividends, therefore, were subject to Danish withholding tax, but the Danish National Tax Tribunal ruled that the Luxembourg holding company was the beneficial owner of the dividends which, therefore, were not subject to withholding tax. The main reason for this ruling was the fact that the dividends were not paid on from the Luxembourg holding company to its shareholders but were paid back to the Danish subsidiary as a loan.
The Danish Tax Authorities has recently appealed this ruling to the High Court and we expect that a ruling from the High Court in any case will be appealed to the Supreme Court. We will, therefore, probably have to wait for a few years before we see a final decision from the Supreme Court in this case.
Further, the Danish Tax Authorities has announced that they have several cases in the pipeline in which withholding taxes will be claimed in similar set ups based on the conduit company argument.
Foreign investors using corporate structures similar to the structure described above for investing in Danish companies will, therefore, have to be prepared for Danish claims for withholding taxes against their Danish entities. However, such claims should not necessarily be accepted as long as the legal basis is still uncertain.
Questions can be addressed to Karsten Gianelli at kgi@bdo.dk
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