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Anti-Abuse Bill Has Negative Impact For Danish Holding Companies
The new anti-abuse bill follows a line of high profile court and administrative cases on the issue of beneficial ownership and illustrates a tendency towards tightening the Danish dividend withholding tax rules. Taxand Denmark investigates the impact this new bill will have on multinationals.
The new anti-abuse bill effectively imposes a beneficial ownership requirement on other countries. Therefore, if a Danish company is used as a perceived conduit entity in an international "treaty shopping structure" and thereby facilitating the reduction of foreign dividend withholding tax, Denmark will impose dividend withholding tax on the otherwise tax exempt dividend distributions from the Danish company to the foreign parent.
The bill will mainly affect international structures where a Danish company is used as an intervening holding company to funnel dividends received from a foreign subsidiary to its foreign parent, and therefore does not constitute a beneficial owner (according to the Danish tax authorities) of the dividends received from its foreign subsidiary.
The anti-abuse rule does not apply if the distribution of dividends from the Danish conduit company is covered by the EU Parent/Subsidiary Directive.
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The bill is another example of the Danish Government's disdain of the Danish investment climate. To our knowledge, no other jurisdiction in Europe has yet imposed a beneficial ownership requirement on other jurisdictions. If enacted, the legislative proposal will not only have the effect that Danish holding companies will move to other more attractive holding company jurisdictions but it will also add to the disrepute of Denmark as an unstable investment jurisdiction and reduce foreign investments into Denmark.