In recent years, the Danish tax administration ("DTA") has launched a large number of legal cases against Danish companies who have either distributed dividends or paid interest to parent companies in other EU Member States or countries with which Denmark has concluded double taxation treaties. Ever since these cases were first initiated back in 2008, Plesner has played a leading role in the proceedings.

The DTA claims that the parent companies in question are so-called conduit companies because the amounts received, according to the DTA, have been passed on to group related entities in tax haven countries. The parent companies are consequently not the beneficial owners of the dividends or interest received - the Parent-Subsidiary Directive and the Interest and Royalties Directive have been abused - and the Danish subsidiaries should therefore have withheld tax at source in connection with such payments. As they failed to do so, the DTA is of the opinion that the Danish companies are liable for payment of the tax.

The number of cases is substantial, and the values involved are significant.

Plesner has conducted and won the ISS cases

The two first cases that were decided by the Danish courts were the so-called ISS cases – one case involving dividend tax payments and another involving interest tax payments. 

Plesner conducted both these cases for ISS A/S, and the court gave judgment in favour of ISS in both cases, i.e. ruling that no obligation to withhold tax at source existed.

The Danish Ministry of Taxation did not appeal against the judgments, and the outcome is therefore final.

Plesner is conducting a number of test cases

The other beneficial owner cases are pending before the Danish National Tax Tribunal or the ordinary courts, including before the Danish Supreme Court.

In six of the cases before the ordinary courts (out of which Plesner represents three tax payers), the Danish High Court in 2016 referred a series of preliminary questions to the Court of Justice of the European Union ("CJEU").

Advocate General Kokott expressed the opinion that the companies should be supported in almost every issue, but in its judgments of 26 February 2019 the CJEU did not follow the Advocate General. 

After the CJEU judgments, the test cases were reassumed at the High Courts, and in the beginning of 2021 the two first cases (the NetApp and the TDC cases concerning dividend withholding tax) were heard before the Eastern High Court. 

On 3 May 2021, the Eastern High Court gave its judgment in the two cases. Whereas TDC lost its case, the High Court essentially ruled in favour of Plesner's client, NetApp.

The High Court, thus, held that NetApp had documented that the essential dividend was made as part of the Group's planned repatriation of dividends to the Group's parent company in the USA (which could have been done in a tax exempt manner had the dividends been distributed directly), that the dividend was, in fact, distributed all the way up to the US parent company (why this entity was, in reality, the "beneficial owner" of the dividend), and that there consequently - as argued by NetApp - was no abuse of the Double Tax Treaties or of the Parent/Subsidiary Directive. Thus, the fact that the dividend had passed through an intermediary holding company in a state, with which Denmark had not concluded a Double Tax Treaty, was not decisive.

The judgment has been appealed by the Ministry of Taxation to the Supreme Court (just as TDC has appealed its judgment). The cases will be argued in the Supreme Court during the final hearing in December 2022.

On 25 November 2021, the Eastern Division of the Danish High Court gave judgment in another two test cases (on interest withholding tax) - namely the case concerning Takeda/Nycomed conducted by Plesner and NTC's case concerning payment of interest. 

Not surprisingly, the Court upheld its interpretation as expressed in the NetApp and TDC cases in terms of a number of issues of principle. The Court ruled in favour of the Ministry of Taxation in both cases. In the Takeda case, the Court agreed with Takeda that there had been no flow of interest through to a country with which Denmark has not concluded a double taxation agreement, since the funds stopped in another EU country, Luxembourg. On the other hand, the Court followed the argument of the Danish Ministry of Taxation that the Luxembourg company in question, an S.C.A., SICAR company, could be compared to a so-called 1929 Holding Company, which is not covered by the Denmark-Luxembourg tax treaty.

The judgment has been appealed to the Supreme Court.

In May 2020 the International Tax Review has awarded Plesner two "Impact Case Awards" for conducting the "beneficial owner" cases for the Court of Justice of the European Union.

In addition to these test cases, Plesner is also conducting a number of other beneficial owner cases.

Principal questions in the beneficial owner cases

In addition to the questions referred to the CJEU – which specifically concern the interpretation of the Parent-Subsidiary Directive and the Interest and Royalties Directive, their interaction with the general EU anti-abuse principle, and their transposition into Danish law as well as of the freedom of establishment of the EC Treaty – the beneficial owner cases raise a wide range of additional questions.

These questions especially concern the interpretation of the relevant double taxation treaties, the significance of the DTA’s change in practice and the issue of whether the companies have acted negligently.

In addition, after the judgments of the CJEU it has become a central question of constitutional law whether the Danish courts can or must apply the "general EU anti-abuse principle".

For a detailed review of the DTA’s change in practice and its significance, see Hans Severin Hansen’s article "The great hypocrisy – the beneficial owner cases" in the Danish Journal for Taxes and Duties. For a more detailed review of the Danish beneficial owner cases, see Plesner's review article "Danish beneficial owner cases – a status report" in the Bulletin for International Taxation.

See also EU tax litigation.

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