Opinions of the Advocate General in the “beneficial owner”-cases

23 March 2018

Anders Kiærskou, Manager, Tax |

On 1 March 2018, the Advocate General issued her opinions in the “beneficial owner”-cases. The pending rulings by the EU Court of Justice are expected later this year.

The cases concern whether Danish companies should have withheld taxes when distributing dividend and paying interest to parent companies in other EU jurisdictions.

It is the opinion of the Danish tax authorities that the parent companies were not the “beneficial owners” of the income as it was redistributed to group companies in tax havens.

Hence, in the opinion of the Danish tax authorities, the EU Parent/Subsidiary Directive and the EU Interest/Royalties Directive did not exempt the Danish companies from withholding taxes in these situations, and the companies are therefore liable to pay the withholding taxes.

In the cases concerning interest payments, the Advocate General concluded that a company resident in another EU member state, owning the interest-bearing claim, should be treated in principle as the beneficial owner.

The situation would only be different, if it was acting not in its own name and on its own account, but for and on the account of a third party.

The Advocate General further stated that the concept of beneficial owner according to the EU Interest/Royalties Directive must be interpreted under EU law autonomously and independently of the commentaries to the OECD Model Tax Convention.

In the cases concerning dividend distribution, the Advocate General concluded that the EU Parent/Subsidiary Directive does not apply the concept of beneficial owner.

Consequently, a company resident in another EU member state receiving dividends from a Danish subsidiary is by default the dividend recipient according to the directive.

In both the cases concerning interest payments and the cases concerning dividend distributions, the Advocate General concluded that an EU member state cannot rely on the anti-abuse provisions of the above stated EU directives, if it has not transposed such provisions.

Denmark had not transposed the anti-abuse provisions of the EU directives.

Further, no Danish general anti-abuse rules could be applied in these situations.

The above article is taken from tax:watch, our electronic English newsletter on Danish Tax and VAT matters. tax:watch is issued on the last Friday of each month and is free of charge. Please sign up here.