Danish tax authorities lose beneficial ownership case

This is the first case in which the National Tax Tribunal has found that an EU parent company was the beneficial owner of dividends covered by the EU Parent-Subsidiary Directive (PSD)

The Danish National Tax Tribunal published its decision on 13 January 2012 in the fourth of a series of cases dealing with the beneficial ownership of dividends and interest paid by a Danish company to a nonresident holding company (SKM2012.26.LSR).

The tribunal ruled in favor of the taxpayer, with the result that the dividends could be paid from Denmark free from Danish withholding tax.

In the present case, the Cypriot company was a legally established and properly functioning company, and by virtue of its ownership of the shares in the Danish company, was the proper recipient of the dividends distributed by the Danish company. The fact that the main activity of Cyprus Ltd. was to hold shares in the Danish company did not necessarily imply that it was not a commercial operation and, thus, the case differed from other cases in which the Danish Supreme Court has ruled that an arrangement was abusive and, therefore, should be disregarded. As a result, under article 5 of the PSD, the distributions by the Danish company are exempt from withholding tax.

The Ministry of Taxation is considering whether to appeal the case to the High Court.
source : Intax