Denmark: Withholding tax relief at source, model framework

Denmark: Withholding tax relief at source

The Danish Minister of Taxation has agreed with Finance Denmark to a model framework for withholding tax relief at source.

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The framework agreement implies that the Danish domestic dividend tax rate of 27% may be reduced to an applicable tax treaty rate for withholding at source, provided that the foreign shareholder has been registered with the Danish tax authorities and is assigned a unique Danish tax identification number before the date of the dividend payment. Shareholders that are entitled to a withholding tax rate that is lower than the standard tax treaty rate (e.g., pension funds or sovereign funds) would need to be pre-approved by the tax authorities, at registration, as being eligible for a reduced tax rate or for an exemption from tax.

Shareholders that do not timely obtain a Danish tax identification number would be allowed to register within up to four months after the date of the dividend payment, and based on this registration, the amount of tax withheld may be refunded. The refund claim would have to be submitted within six months after the dividend payment date. Only banks/custodians would be allowed to report the information about shareholders and submit the refund claim to the tax authorities.

Banks/custodians would be liable for any tax underpayment if an incorrect tax rate is applied (e.g., if the dividend recipient was not the beneficial owner of the shares). A "beneficial ownership declaration" would need to be prepared and signed by the shareholder.

The tax authorities would carry out “spot checks” to verify information about shareholders and their eligibility for treaty benefits.

According to the framework agreement, one condition for Danish banks to apply regarding withholding tax relief at source is that this mechanism would allow them an opportunity to recover losses (if any) from foreign banks/custodians—thus, these foreign banks/custodians would also need to agree to the terms of the framework model.


KPMG observation

There is currently no detailed model in place, but the parties to the framework agreement expect that the model can now be developed. Thus, currently it is not known when the model would be effective. There are certain remaining action steps—a consultation must be completed, and there are a number of technical matters that first must be resolved.


For more information, contact a KPMG tax professional in Denmark:

Birgitte Tandrup | +45 3945 1700 | birgitte.tandrup@kpmg.com

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