The notion of "beneficial owner" has in recent years been intensely debated in Denmark. A judgement from the High Court provides some clarification, but important questions remain unresolved.
"Beneficial owner" in Danish tax law
The term "beneficial owner" does not have an equivalent in Danish law, and until recently the Danish tax authorities did not seem to have looked into whether a recipient of dividends and interest from sources in Denmark was also the "beneficial owner".
Recently, however, the Danish tax authorities investigated more than 100 structures (primarily private equity and industry structures) and initiated more than 20 court cases against companies claiming more than 5 billion DKK focusing specifically on conduit companies, meaning intermediary companies which formally receive payments for their own benefit, but in reality for the benefit of other companies.
In December 2011 the High Court of Eastern Denmark delivered the first Danish judgement involving the notion of "beneficial ownership". The facts of the case were particular in that the parent company in Luxembourg did not pass on dividend to its parent company, or to the shareholders of the parent company, but instead lent it to its Danish subsidiary. The High Court ruled that, in these circumstances, the parent company in Luxembourg should not be regarded as a conduit company, but as the "beneficial owner" of the dividend. Consequently, the Luxembourg parent company was entitled to the zero rate of withholding tax provided for under the Danish participation exemption regime.
Outlook
Important questions remain unsettled when it comes to "beneficial ownership". These include the interpretation of the notion of "beneficial owner" according to the relevant EU directives, and the legality of the Danish withholding tax rules in view of Article 49 TFEU. Notably, the High Court recently decided to make a preliminary reference to the Court of Justice of the European Union in a case concerning the withholding of tax on interest. Presumably this will bring some clarification, including on the relationship between the notions of a "beneficial owner" under EU law and under the OECD Model Tax Convention.
Other important questions concerning retroactive changes in the Danish administrative practice and the right of ultimate owners according to tax treaties seem destined to reach, ultimately, the Danish Supreme Court on appeal from either the Revenue or the tax payer. Until then it remains open how the notion of "beneficial owner" should be applied in Danish tax law, and this uncertainty must be taken into account in cross-border structures involving Denmark, of course.
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