Danish Supreme Court rules against tax payers in two "beneficial owner" cases regarding interest
04 May 2023
Today, the Danish Supreme Court upheld two judgments given by the Eastern High Court in November 2021 in the two first cases in the so-called "beneficial owner" group of cases regarding interest, which both ruled in favour of the Ministry of Taxation. The Supreme Court held that Takeda (Nycomed) and NTC should have withheld tax at source in connection with interest payments to their parent company, and, further, that they acted negligently when they did not withhold the tax. Consequently, they are liable towards the Danish tax authorities for the tax claims. The Supreme Court followed the line it laid down in the judgments in the two first test cases in January 2023, also regarding interest. Plesner acted as counsel to Takeda (Nycomed).
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.
Multiple "beneficial owner" cases are pending before both the two Danish High Courts and the Supreme Court, 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 case. 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 Takeda 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.
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 interest payments made by i.a. the Danish company Nycomed A/S, which later became a part of the Takeda group, which Plesner represents.
Takeda is a large Japanese pharma group that acquired the Nycomed group from a consortium of private equity funds in 2011.
The Takeda/Nycomed case was raised in 2010 by the Danish tax authorities and brought before the Eastern High Court in 2012 by Takeda.
After a detour around the CJEU the Eastern High Court gave its judgment in November 2021. The High Court held that Takeda (Nycomed) was obliged to withhold tax at source in connection with interest payments made by the Danish company in 2007-2009 to its Swedish parent company. In this respect, the High Court found that it played no role that the interest payments ended in another EU company since this company was held not to be covered by the relevant double tax treaty (between Denmark and Luxembourg). Further, the High Court held that the Danish company acted negligently in its omission to withhold the interest tax why the company was liable vis-à-vis the Danish tax authorities for the tax claim.
Supreme Court has now upheld the High Court's judgment. Supreme Court disagreed, however, with High Court and did not find that the Luxembourg company was the beneficial owner of the interests. Consequently, Supreme Court did not find it necessary to decide if the Luxembourg company was protected by the double tax treaty. In fact, Takeda was caught between two stools, as Supreme Court did also not accept that the shareholders in the Luxembourg company were the beneficial owners of the interests.
In today's other judgment concerning NTC - a holding company in the TDC group - the Supreme Court has also upheld the judgment of the Eastern High Court and held that the Danish entity was obliged to withhold tax at source in connection with interest payments to its parent company, and, further, that the Danish company acted negligently why the company is liable for the tax claim.
In an immediate reaction to the judgment, one of the counsels arguing the case, Søren Lehmann Nielsen, Plesner, says:
"It goes without saying that we and Takeda are disappointed with the outcome although we have to accept it as it is final. We believed that we had a number of strong - and decisive - arguments as to why there was no abuse in this matter. The funds remained within the EU and were not passed on to a company in a tax haven. We will now peruse the Supreme Court's reasoning and see if we can explain our client why the Supreme Court reasoned as it did."
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.
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.
Multiple "beneficial owner" cases are pending before both the two Danish High Courts and the Supreme Court, 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 case. 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 Takeda 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.
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 interest payments made by i.a. the Danish company Nycomed A/S, which later became a part of the Takeda group, which Plesner represents.
Takeda is a large Japanese pharma group that acquired the Nycomed group from a consortium of private equity funds in 2011.
The Takeda/Nycomed case was raised in 2010 by the Danish tax authorities and brought before the Eastern High Court in 2012 by Takeda.
After a detour around the CJEU the Eastern High Court gave its judgment in November 2021. The High Court held that Takeda (Nycomed) was obliged to withhold tax at source in connection with interest payments made by the Danish company in 2007-2009 to its Swedish parent company. In this respect, the High Court found that it played no role that the interest payments ended in another EU company since this company was held not to be covered by the relevant double tax treaty (between Denmark and Luxembourg). Further, the High Court held that the Danish company acted negligently in its omission to withhold the interest tax why the company was liable vis-à-vis the Danish tax authorities for the tax claim.
Supreme Court has now upheld the High Court's judgment. Supreme Court disagreed, however, with High Court and did not find that the Luxembourg company was the beneficial owner of the interests. Consequently, Supreme Court did not find it necessary to decide if the Luxembourg company was protected by the double tax treaty. In fact, Takeda was caught between two stools, as Supreme Court did also not accept that the shareholders in the Luxembourg company were the beneficial owners of the interests.
In today's other judgment concerning NTC - a holding company in the TDC group - the Supreme Court has also upheld the judgment of the Eastern High Court and held that the Danish entity was obliged to withhold tax at source in connection with interest payments to its parent company, and, further, that the Danish company acted negligently why the company is liable for the tax claim.
In an immediate reaction to the judgment, one of the counsels arguing the case, Søren Lehmann Nielsen, Plesner, says:
"It goes without saying that we and Takeda are disappointed with the outcome although we have to accept it as it is final. We believed that we had a number of strong - and decisive - arguments as to why there was no abuse in this matter. The funds remained within the EU and were not passed on to a company in a tax haven. We will now peruse the Supreme Court's reasoning and see if we can explain our client why the Supreme Court reasoned as it did."
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.
