The same applies to interest and royalties. In general, 27 % withholding tax is levied on dividend distributions to foreign shareholders, unless the dividend is tax exempt according to Section 2, stk. 1, litra C. 

However, dividends paid to a parent company in another EU member state, or a state which Denmark has concluded a double taxation agreement (DTT), are exempt from withholding tax provided that the shares qualify as subsidiary shares or group company shares. In that case the taxation can be reduced or fully eliminated in accordance with the specific DTT or the EU Parent Subsidiary Directive if the recipient is able to claim the benefits unless the recipient is not the beneficial owner.

The term “beneficial owner” is decisive in determining when exempt can be granted to a foreign company who is subject to a limited tax liability in Denmark. There is no defined term of “beneficial owner” in Danish tax law. The term is found under the international tax treaties. The concept of “beneficial owner” appears in the OECD Model Tax Convention, which is the basis for the Danish DTT’s. The concept of “beneficial owner” is to be given an international autonomous meaning not derived from the domestic laws of the EU-member states. Upon satisfaction of the beneficial ownership condition in the OECD Model Tax Convention, the taxpayers can avail beneficial tax rates as available under the tax treaties.

The beneficial owner of dividends is the person (company) who receives the dividends for his own use and enjoyment and at the same time assumes the risk and control. A company who is obliged (contractually or legally) to pass the dividend to another company cannot be considered the beneficial owner as the company instead will qualify as a conduit for another company. A conduit company is a company who passes the amounts received on to a group of related entities often in tax haven countries such as Panama.

In recent years, the Danish tax administration has brought several legal cases against Danish companies who have made dividend distributions or paid interest to parent companies in other EU member states or countries with which Denmark has concluded a DTT with. The Danish tax administration claims that the involved companies are conduit companies who cannot be considered the beneficial owner. As the companies failed to do so, the Danish tax administration claims that the companies are liable for payment of the Danish withholding tax. The judgments in the complex of cases have been appealed to the Supreme Court. It is now up to the Supreme Court to finally decide the cases.

If you want to know more about beneficial ownership, you are always welcome to contact DAHL Law Firm.