The Danish tax authorities have denied an EU-based parent company and its Danish subsidiary enjoying the benefits under the Parent-Subsidiary Directive arguing that this arrangement constituted abuse under the Danish GAAR.
About the cases
A number of recent binding advanced rulings issued by the Danish National Assessment Council have amplified the understanding and use of the Danish GAAR. The rulings, which all relate to the solvent liquidation or relocation of a Danish holding company, have taken the Danish GAAR into consideration in most cases but have not found that the transactions ultimately constitute abuse or attempts of avoidance. However, one ruling ordered that the company be denied the benefits under the Parent-Subsidiary Directive.
In this case, the advance ruling of the National Assessment Council seems to put the burden of proving that the contemplated action is based on commercial reasons squarely with the taxpayer. The tax authorities presumed that the purpose of first relocating the parent company and subsequently the subsidiary was to achieve a beneficial tax position and the taxpayer was required to produce documentation that this was not the case. This approach goes against the preliminary work regarding the GAAR which states that it rests with the tax authorities to determine whether a tax arrangement is an artificial one. If the tax authorities are able to lift this burden of proof it will be for the taxpayer to prove otherwise.