Fund Taxation Alert 2021-06

Danish Supreme Court rules in the Fidelity Case while Denmark amends the taxation of investment funds

Denmark: WHT – Supreme Court ruling on Fidelity Case and changes to the legislation


Danish investment funds that have invested in Denmark are not subject to Danish withholding tax (WHT), provided they fulfill the requirements of article 16C of the Danish tax law (which 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) – the so called investment funds with minimum taxation (IMBs).

On the other hand, foreign UCITS funds are liable to WHT levied on dividends from Danish companies, even if they fulfilled the requirements of article 16C. Foreign funds therefore argued that this difference in treatment was contrary to the free movement of capital and requested a refund of the tax levied.

The Danish High Court responsible for reviewing this case referred it to the Court of Justice of the European Union (CJEU) for a preliminary ruling.

On 21 June 2018, the CJEU issued its ruling in the Fidelity Funds case, finding that Danish legislation is in breach of the EU law. It concluded that the dividend WHT that Denmark imposes on foreign investment funds, based on their country of residence, constitutes a restriction on the free movement of capital. However, the CJEU ruling did not determine whether only foreign investment funds that have complied with the conditions applicable for IMBs would be entitled to a refund/exemption from Danish WHT.

Following the CJEU ruling, the Danish Supreme Court has published its ruling in the Fidelity Case on 24 June 2021.

The Supreme Court ruling

The conditions to be considered an IMB and thus eligible for the Danish tax exemption was:

  1. The investment funds should be resident in Denmark.
  2. The fund should be a distributing fund or subject to deemed distribution rules in its country of residence.
  3. The investment funds should have elected to be qualified as IMBs and complied with the requirement to submit minimum tax assessments in accordance with the Danish rules.

Regarding the first condition, the Supreme Court agreed that it was contrary to EU-law.

However, concerning the third condition, the Supreme Court took the view that the requirement is justified by the need to ensure the coherence of the Danish tax system and a proportionate measure.

Since the foreign funds did not meet this third requirement and cannot meet it with retroactive effect, the Supreme Court concluded that the foreign funds are not entitled to a repayment of Danish dividend withholding tax despite the condition regarding tax residence being contrary to EU law.

Changes of investment fund taxation

Following the formal notice from the European Commission, Denmark has now presented changes to its legislation, as summarized below, in order to ensure alignment with EU law which inter alia applies to charities, foundations and other pension funds.


Taxation of investment funds

Danish IMB's (with certain exemptions) become subject to Danish withholding tax of 15% on dividends from 1 January 2022. As of this date, there will be no different treatment of Danish and foreign investments funds and accordingly, the EU arguments for full dividend withholding tax reclaims submitted by foreign funds should apply for dividends declared up until 31 December 2021 but not after that date.

Consequences and recommendations for the next steps

Based on the currently published ruling of the Supreme Court, the chances of success for pending claims should now be considered as low. Nevertheless, it cannot be excluded that there is a possibility for some foreign funds to prove that their domestic legislation implies that they are comparable to Danish investment funds and comply with the Danish Tax Assessment Act section 16C.

The situation may change if and to the extent that an infringement procedure is launched against Denmark to challenge this very restrictive and non-EU law compliant decision. If successful, this could especially open the door to reimbursements for distributing funds or funds with distributing share classes.

A dedicated team of tax advisers and project management experts could support you in analysing which type of funds can be considered as comparable and in processing the WHT reclaims in Denmark accordingly. No EU reclaims should be possible after the new legislation comes into effect, i.e. as of 1 January 2022.