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New treaties on double taxation and exchange of information in tax matters

Denmark
10 Mar 2010

The Danish Parliament has, by Acts nos. 1077 of 20 November 2009, adopted exchange of information agreements between Denmark and Aruba, Bermuda, the British Virgin Islands, the Cayman Islands, and the Netherlands Antilles. This is all part of OECD's effort to fight harmful tax practices.

These agreements enable Denmark to obtain information from these jurisdictions for the purpose of taxation. Additionally, there have been different agreements made with each of these States. This includes agreements on double taxation with Bermuda, the British Virgin Islands and the Cayman Islands. By Act nos. 1078 and 1079 of 20 November 2009, the Danish Parliament has also adopted new double taxation treaties with both Israel and Serbia, and amendments have been made to the double taxation treaties with Switzerland, Belgium, Luxembourg, Austria and Singapore. Taxand Denmark establishes the benefits of these treaties and explains how they will impact multinationals.

The agreement with Bermuda entered into force on 1 January 2010. It has not been determined when the other exchange of information agreements will take effect.

Under both the Israel and Serbian treaties, distributions from private pensions will be taxed in the country of source as opposed to the recipient's country of residence.

Furthermore, the new treaty with Israel amends the rules for taxation of dividend distributions from subsidiaries to corporate shareholders. Corporate shareholders with shareholdings of at least 10% will not be taxed at the country of source provided shares are held for minimum period of 12 months. Additionally, the treaty provides for rules on taxation of interest, royalties, and government aid (including social pensions).

The new treaty with Serbia introduces a maximum tax rate of 5% on dividend distributions from a subsidiary to a corporate shareholder when the corporate shareholder holds at least 25% of the share capital of the subsidiary. In all other cases, the country of source may be taxed dividend distributions at 15%.

The treaty with Serbia entered into force on 1 January 2010. It has not been determined when the agreement with Israel will take effect.

Moreover, some amendments have been made to the double taxation treaties with Switzerland, Belgium, Luxembourg, Austria and Singapore. By Acts nos. 1131 and 1132 of 4 December 2009, the Danish Parliament adopted some amendments to the protocols of the exiting treaties.

Under the new protocol agreement with Switzerland, both Denmark and Switzerland will have the opportunity to apply a 15% withholding tax on dividends distributed from Danish or Swiss portfolio investments (defined as having share holdings of less than 10%). The provision concerning private pensions has also been changed. Due to the amendment, distributions from private pensions will be taxed in the country of source as opposed to the recipient's country of residence.


Taxand's Take


These protocol amendments bring rules on exchange of information into line with the OECD Model Tax Convention. Thus, these governments are now committed to obtaining and providing information from their financial institutions to share with the Danish authorities, on the condition that the Danish authorities have requested such information in the first place.

However, before the protocols can take effect, they need to be adopted by the Parliaments of Switzerland, Belgium, Luxembourg, Austria and Singapore.

Your Taxand contact for further queries is:
Anders Oreby Hansen
T. +45 72 27 36 02
E. aoh@bechbruun.com

Taxand's Take Author