TaxWatch:

Increased dividend withholding tax rate and non-deductible payments

03 May 2021

Arne Riis, Partner, Tax |

In accordance with the EU-proposed defensive measures against tax havens, the Danish Parliament has proposed to implement a higher withholding tax rate on dividends from Denmark and to deny deductibility for payments from Denmark.

In accordance with the EU-proposed defensive measures against tax havens, the Danish Parliament has proposed to implement a higher withholding tax rate on dividends from Denmark and to deny deductibility for payments from Denmark.

The proposed measures are in effect if the receiving taxable person is residing in the following EU-blacklisted jurisdictions:

  • American Samoa
  • Anguilla
  • Barbados
  • Fiji
  • Guam
  • Palau
  • Panama
  • Samoa
  • Seychelles
  • Trinidad and Tobago*
  • The American Virgin Islands
  • Vanuatu
     

Higher withholding tax rate on dividends (44%)

A foreign physical person will be subject to Danish withholding tax at the higher rate of 44%, as opposed to the normal tax rate of 27%, when the beneficial owner of the dividend is (i) majority shareholder, and (ii) tax resident in one of the jurisdictions mentioned above.

For foreign legal persons, the higher withholding tax rate of 44% applies, as opposed to the normal tax rate of 22 %, if the yield is received on subsidiary shares or group company shares when the beneficial owner of the dividend is residing in one the jurisdictions mentioned above.

The dividend paying Danish company is required to withhold 44% when the dividend is paid on majority shareholder shares, subsidiary shares or group company shares and the beneficial owner is tax resident in one of the jurisdictions mentioned above.
 

Denial of deductibility for payments going out of Denmark

The second element of the enacted bill provides for denial of deductibility of payments to a related party (subject to definition) which is tax resident in one of the jurisdictions listed above. The rules also apply if it can be substantiated that the beneficial owner of the payment is tax resident in the EU or EEC or a jurisdiction which has a tax treaty with Denmark.

Included “payments” are broadly defined and applies both when the payments are made to acquire or use assets or a service or as consideration for financing, such as interest or commission fees.
 

The new rules apply to payments made as of July 1, 2021.

 

*The concurrent Bill L 149 ensures that the measures mentioned above can be effective vis-à-vis Trinidad and Tobago by providing for a termination of the double taxation agreement with Trinidad and Tobago.