An international anti-abuse clause has been adopted in DK tax law

24 April 2015

In a new bill passed by the Danish parliament, an international anti-abuse clause has been adopted in Danish tax law. The clause takes effect from 1 May 2015.

As described in the March 2015 issue of tax:watch, the Danish government recently presented a draft bill seeking to implement an international anti-abuse clause in Danish tax law. On 21 April 2015, the bill was passed by the Danish parliament.

Based on recently introduced EU legislation, the international anti-abuse clause will prevent tax payers from benefitting from Danish double tax treaties and several EU-directives concerning international taxation with respect of company reorganizations, payments of dividends, interests and royalties if the main purpose or one of the main purposes of the arrangement is to achieve a tax advantage contrary to the purpose of the EU-directive or double tax treaty.

Concern has been expressed by many that the international anti-abuse clause in the draft bill was phrased quite vaguely making it uncertain to what extent, the clause will be applied by the Danish tax authorities. Neither the comments to the draft bill provides much guidance.

Any hope that the legislative process in the Danish parliament would shed some much appreciated light on the scope of the anti-abuse clause was hardly fulfilled in spite of several efforts by industry associations, law firms etc. to address the issue and make the Danish Minister of Taxation elaborate on the application of the clause.

Unfortunately, rule of law does not seem to be very important to the Danish government when it comes to taxation and it remains to be seen how the international anti-abuse clause will be applied by the Danish tax authorities and subsequently by the courts. However, this will likely take years leaving tax payers with considerable uncertainty in the meantime.

Nevertheless, the bill adds further uncertainty by amending the rules concerning binding rulings issued by the Danish tax authorities.

According to the bill, a binding ruling issued on 1 July 2015 or later concerning the value of an asset shall only bind the Danish tax authorities for 6 months. Further, a binding ruling on this issue shall not bind the Danish tax authorities if it can be substantiated - based on a subsequent sale of the asset or from the size of return from the asset - that the actual value of the asset at the time the binding ruling was issued diverged at least 30 pct. and at least DKK 1,000,000 from the value in the binding ruling.

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.