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TIEAs Provide for Reduced Withholding Tax


During 2011, Denmark entered into Tax Information Exchange Agreements ("TIEAs") with a number of countries, including Barbados and Liechtenstein. Apart from securing the Danish Tax Authorities access to information on Danish tax payers, the agreements also entail reduced Danish withholding tax on dividend distributed to investors domiciled in the relevant jurisdictions. Taxand Denmark considers the new TIEAs and looks at how multinationals with businesses in Denmark could potentially benefit.

In 2011, the number of countries with which Denmark signed TIEAs, expanded in a big way. Adding, among others, Bahrain, Barbados, Costa Rica, Liechtenstein, Macao, Mauritius, and the Seychelles to an already extensive list of counties including, Andorra, Bahamas, British Virgin Islands, the Cayman Islands, the Cook Islands, Guernsey, Jersey and Monaco, has provided the Danish government with a substantial network on which to gather tax related information from so-called "tax havens".

The expanded number of TIEAs however also implies some very good news for the professional investors located in the relevant jurisdictions. Under national Danish tax law, foreign investors in Danish portfolio shares, domiciled in a country with which Denmark has entered into an agreement for the exchange of information relating to tax matters and the agreement has entered into force, are eligible for a reduced Danish withholding tax on dividends. Consequently, such investors are subject to a 15 % Danish final withholding tax rate instead of the general 27 % withholding tax rate.
The reduced withholding tax does not apply of the investor holds a nominal participation of 10 % or more in the Danish company.

If an investor domiciled in a TIEA collaborating state has received dividends on Danish shares subject to a 27 % withholding tax rate, the investor may apply for a withholding tax refund from the Danish Tax Authority.

Taxand's Take

Investors domiciled in a country with which Denmark has a TIEA are eligible for a reduced withholding tax rate of 15 %, on dividends from Danish shares. As the number of counties with which Denmark has concluded a TIEA has greatly expanded doing the recent years, this possibility will include investors located in a number countries, such as Barbados, Liechtenstein, Andorra, The British Virgin Islands, the Cayman Islands and Jersey. These investors should ensure that they apply for a refund of withholding tax from the Danish Tax Authorities. Generally, a statute of limitation of five years applies for such refund claims.

Your Taxand contacts for further queries are:
Arne Riis
T. +45 72 27 33 22

Poul Erik Lytken
T. +45 72 27 35 31

Taxand's Take Author