The tax treatment of foreign group contributions

28 October 2016

If a foreign group contribution is considered having passed an intermediate Danish company, the question arise how this distribution should be treated tax wise.

The Danish tax authorities have been asked whether a group contribution from a foreign subsidiary of a foreign parent company should be considered passing through an intermediate Danish company. Further, should this indeed be the case, it has been asked whether the contribution should be qualified as dividend and if so, whether the dividend would be tax free or taxable in Denmark.

To this question, the Danish tax authorities have replied that whether the contribution shall be deemed to have passed the intermediate Danish company depends on an individual assessment of whether the purpose of the group contribution is to benefit certain group companies.

If this is not the case based on an individual assessment, the group contribution is not to be considered having passed the Danish company, and it should therefore not be taxed in Denmark.

Conversely, if the group contribution is deemed to have passed the intermediate Danish company, it is qualified as dividend.

As such, the contribution will be tax free, unless the distributing company can deduct the distribution for tax purposes. Should this be the case, the contribution will generally be taxable in Denmark in order to avoid double non-taxation.

However, the distribution may not be taxable in Denmark in cases where the distribution will be taxed in the ultimate parent company upon redistribution.

Thus, it is the opinion of the Danish tax authorities that if an intra-group contribution can be considered having passed the intermediate Danish company, it should be treated as dividend.

The contribution will generally not be subject to Danish tax if the ultimate parent company will be taxed on the redistribution. Hence, the intermediate Danish company will not be liable to Danish tax on the distribution, even if that contribution is considered having passed the intermediate Danish company.

A binding ruling from the Danish tax authorities can be requested in specific 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.