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New double tax treaty between Denmark and France

31 May 2019

Anders Kiærskou , Manager, Tax |

The Danish tax minister has concluded an agreement with France on the taxation of pensions. Based on this agreement, it is expected that a new double tax treaty will be concluded.

For a long period, Denmark and France have negotiated constructively for a new double tax treaty.

A new double tax treaty based on the agreement that has now been reached will be an improvement for Denmark compared to the previous treaty, which was terminated by Denmark in 2008.

The agreement will benefit Danish companies and individuals in France. Particularly, the agreement will benefit Danish pensioners wanting to spend their retirement in France.

The agreement implies that Danish pension payments to pensioners residing in France will no longer be fully taxed in both Denmark and France.

Specifically, the agreement will allow Denmark to tax future pension payments from Danish pension schemes to pensioners living in France. This was prohibited by the previous double tax treaty between the two countries.

As Denmark was previously unable to reach an agreement with France to change this, Denmark terminated the double tax treaty with France in 2008.

Consequently, Danish pensioners wanting to relocate to France to enjoy their retirement and live on disbursements from their Danish pension schemes were forced to change plans.

Currently, in the absence of a double tax treaty between the two countries, Danish pension payments are fully taxed in both Denmark and France.

However, transitional rules apply to pensioners, who had already relocated to France on 28 November 2007 and started receiving pension payments on 31 January 2008.

According to the new agreement, in return for the right to tax Danish pension payments received by pensioners residing in France, Denmark has agreed to reduce the Danish taxes on the pension payments with an amount corresponding to the French taxes on the pension payments.

This is a departure from the way double tax treaties are usually structured, where the country of residence reduces its taxes to avoid double taxation.

As the Danish tax rates are generally higher than the French tax rates, the Danish tax minister estimates that a substantial part of the tax revenue from Danish pension payments to pensioners resident in France will be attributed to Denmark.

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.