Denmark’s high court in 2019 issued its decision in a case following the 2018 judgment of the Court of Justice of the European Union (CJEU) concerning the compatibility with EU law of the Danish withholding tax on dividends distributed to non-resident investment funds.
Under the tax law in Denmark, Danish investment funds that have invested in Denmark are not subject to Danish withholding tax, provided they satisfy certain requirements of Danish tax law (specifically, article 16C that requires, inter alia, that the funds redistribute their income to their shareholders or submit the calculation of a notional distribution which is subject to tax). On the other hand, foreign UCITS funds are subject to withholding tax on dividends from Danish companies, even if they satisfy the requirements of article 16C.
The case concerned two investment funds that had registered offices, one in the UK and the other in Luxembourg. The funds asserted that the rules treating Danish investment funds differently from foreign funds was contrary to the free movement of capital, and requested a refund of the tax. The Danish high court referred the case to the CJEU for a preliminary ruling, and in June 2018, the CJEU issued its judgment finding that the dividend withholding tax that Denmark imposes on foreign investment institutions, based on their country of residence, constituted a restriction to the free movement of capital.
The case was returned to the Danish high court which considered the question whether foreign funds are entitled to the same tax benefits as a Danish fund, regardless whether the requirements were satisfied or not. The Danish high court answered this question in the negative. The case has now been appealed to the Danish supreme court.
Read a June 2019 report prepared by the KPMG member firm in Luxembourg
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