Tax treaties with France and Spain(Taxwatch (Tax news in english))
12-08-2009 11:19
Af
Hans-Henrik Nilausen
As earlier mentioned as of January 1, 2009, Denmark has got no tax treaties with Spain and France.
Negotiations for new treaties have no doubt been initiated. However, for the time being it is not possible to predict when new tax treaties could be in place.
The termination of the tax treaties has involved several problems for Danish tax resident individuals and businesses. By changing internal Danish legislation Denmark has solved some of the problems.
However, one of the more annoying problems still exists when Danish businesses receive payments such as service fees and interest from sources in France and Spain.
France
Since January 1, 2009 in France, it has been mandatory to withhold 33,33% of the gross amount of payments in the form of service fees, interest etc. from French sources to a Danish resident recipient.
In Denmark the recipient is only taxable on the net amount - that is after deduction of any costs related to the French income.
This involves, that if for instance a Danish company receives a service fee of say 100 from France, the French withholding tax amounts to 33,33.
If costs in connection with the acquisition of the service fee amounts to say 50, the net income in Denmark is 50 and consequently the calculated Danish corporation tax would be 25 % of 50=12,5.
According to internal Danish tax legislation, it is then possible to obtain a credit relief for foreign taxation which however is maximized to the smallest amount of the foreign tax (33,33) or the calculated Danish tax (12,5),
Before the abolishment of the tax treaty, France could not tax the service fee, which involved that the tax on the service fee would be the Danish tax of 12,5. After the abolition of the tax treaty, the tax amounts to 33,33, which is a substantial increase in taxation.
According to our information the French tax authorities are working on a set of guidelines, which should secure, that the French withholding tax rules are brought in agreement with EC law and involve a reduction of the French taxation.
It is expected that the new French guidelines will be published in September or October 2009. The new guidelines will have effect as of January 1, 2009.
Spain
As of January 1, 2009, in Spain, it is mandatory to withhold 24 % of the gross amount on payments such as service fees, interest income etc. from Spanish sources to a Danish resident recipient.
The Spanish taxation involves a similar problem as with France for a Danish resident recipient.
In Spain a bill has recently been proposed that should bring the Spanish rules in accordance with EC law and involve a reduction in the Spanish taxation.
However, it is expected, that the new Spanish rules will not apply before the income year 2010.
Questions to this article can be directed to Hans-Henrik Nilausen at hhn@bdo.dk
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