The Danish Supreme Court has given its judgment in the first two Danish "beneficial owner" cases

The Danish Supreme Court has today given its judgment in the first two test cases in the so-called "beneficial owner" group of case. The Supreme Court finds that NetApp should have withheld dividend tax in respect of a dividend distribution made in 2005 and that the Danish company is liable for the tax whereas there was no obligation to withhold tax in relation to a second dividend distribution made in 2006. At the same time, the Supreme Court holds that TDC was obliged to withhold tax in a contemplated dividend distribution to its parent company. The test cases have consequently been predominantly won by the Ministry of Taxation. Before the National Tax Tribunal the companies won the cases. Also before the High Court, NetApp was successful in respect of the first dividend (but not the second). Today's judgment is thus diametrically opposed to the one from the High Court. Plesner acted as counsel to NetApp before the Supreme Court as well as before the lower courts.

The main issue in the "beneficial owner" cases is whether Danish companies paying interest or dividends should have withheld tax with regard to payments that are typically made to parent companies resident in other EU Member States. In the cases, the Ministry of Taxation claims that the parent companies are not the "beneficial owners" of the received interest or dividends and that the "beneficial owners" are residents of states outside of the EU or states without a double taxation agreement with Denmark why the Danish subsidiaries should have withheld tax at source in connection with the payments. Because they did not make such withholding, the Ministry of Taxation is of the opinion that the Danish companies have acted "negligently" and therefore liable for the tax.  

Over the past years the Danish tax authorities have raised around 150 cases concerning "beneficial ownership" with tax claims totaling several billions of Danish kroner.

In the two cases in which the Supreme Court has now given its judgments, the tax authorities have raised considerable claims regarding non-withheld tax at source in connection with distributions of dividends made by two Danish companies, including the Danish NetApp subsidiary represented by Plesner in these proceedings. NetApp is a US based group established in 1992 which from its head office in Silicon Valley develops, produces and sells hardware and software to network systems. With subsidiaries in more than 40 countries, the US parent is in the S&P 500.

In 2012, NetApp won the case before Denmark's highest administrative tax appeals body, the National Tax Tribunal, after which the Ministry of Taxation brought the case before the Eastern High Court. In 2021, the High Court ruled predominantly in favour of NetApp, but the Ministry of Taxation appealed the High Court's judgment to the Supreme Court.  

Multiple "beneficial owner" cases are pending before both the two Danish High Courts, and, in 2016, the High Court referred a diversity of preliminary questions to the Court of Justice of the European Union ("CJEU") in six test cases, including the NetApp and the TDC cases. These questions concerned the interpretation of EU law, in particular in relation to the Interest and Royalties Directive and the Parent-Subsidiary Directive and the implementation of these Directives into Danish law, and the interpretation of the provision on free movement of capital of the EU Treaty. The Advocate General of the CJEU held in her opinion (supported by the European Commission) that NetApp should prevail in the case, however, on 26 February 2019 the CJEU gave its judgments in the cases that were clearly - in the eyes of most observers - to the advantage of the tax authorities.

Notwithstanding this judgment of the CJEU, the Eastern High Court in 2021 acquitted NetApp in respect of the withholding tax claim regarding the 2005 dividend payment whereas the High Court found in favour of the Ministry of Taxation on the 2006 dividend payment. By contrast, the High Court found in full favour of the Ministry of Taxation in the TDC case. 

In today's judgment, the Supreme Court has changed the judgment of the High Court in the NetApp case and held that NetApp was obliged to withhold tax in connection with the dividend distribution made by the Danish company in 2005 to its parent company in Cyprus, NetApp Holdings Ltd. On the other hand, the Supreme Court held that there was no obligation to withhold tax in the dividend that was distributed in 2006. Further, the Supreme Court found that NetApp acted negligently in its omission to withhold why the company was liable for the tax. Finally, the Supreme Court has held that the tax authorities are entitled to claim interest on late payment - including compound interest - regarding the dividend tax claims also after the Tax Tribunal's decision from 2012, even though it was not a possibility for NetApp to pay the tax claims after this time in order to avoid interest from accruing. The amount of interest on late payment is about twice as high as the dividend tax claim itself. The Supreme Court does, however, indicate that this outcome is unjust and, quite unusually, urges the legislator to look further into this. 

The judgment of the High Court in the TDC case was fully upheld by the Supreme Court.  

In an immediate reaction to the judgment, one of the counsels arguing the case for NetApp, Lasse Esbjerg Christensen, Plesner, says:

"After a very long course of proceedings - 12 years - where the National Tax Tribunal found in favour of NetApp, as well as the Eastern High Court ruled predominantly in favour of NetApp, it goes without saying that today's judgment is not what we had expected, even though the Supreme Court agreed with NetApp that the tax authorities' decision was incorrect. But, we will now be scrutinizing the reasoning by the Supreme Court judges and see if we can explain to our client why the Supreme Court ruled as it did. As far as the withholding tax claim itself goes, there is, however, now put an end to the proceedings."

Read about the beneficial owner cases in more detail.

Read the judgment from the Supreme Court (in Danish).

Plesner's team conducting the cases consists of attorneys Lasse Esbjerg Christensen, Søren Lehmann Nielsen, Anders Endicott Pedersen, Hans Severin Hansen and Mathias Kjærsgaard Larsen.

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