Withholding tax - Dividends to a conduit company?(Taxwatch (Tax news in english))
21-04-2010 07:35
Af
Karsten Gianelli
Outbound dividends from Danish corporation to foreign shareholders are subject to a 28% withholding tax. However, dividends paid to a foreign parent company (i.e. a company holding at least 10% of the shares in the Danish subsidiary) within the EC or in another tax treaty country may be paid without withholding tax, provided, however, that the foreign company is the beneficial owner of the dividends and, thus, not regarded as a conduit company.
The Danish National Tax Tribunal has recently made a ruling specifying some guidelines with regard to in which cases a foreign company within the EU or in another tax treaty country cannot be regarded as beneficial owner of the dividends in which case the dividends are subject to withholding tax in Denmark.
The ruling 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.
However, 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.
Thus, the state of the law in Denmark is probably that a foreign company cannot be regarded as a conduit company with regard to dividend payments unless the dividends received are paid on to the shareholders of the foreign company.
Questions regarding the above can be addressed to Karsten Gianelli at kgi@bdo.dk
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