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Denmark Toughens Rules On Holding Companies

by Ulrika Lomas,, Brussels

16 October 2012

The Danish Ministry of Taxation is planning, with a draft law recently submitted to Parliament, to toughen the anti-avoidance rules applicable to holding companies.

Minister of Taxation Thor Möger Pedersen has submitted a bill which will remove loopholes in Denmark's holding companies regime, hopefully ensuring at the same time that Denmark’s reputation as a competitive jurisdiction to incorporate holding companies is maintained.

The bill aims to ensure that the Danish rules on withholding tax on dividends are not circumvented by intra-group reorganizations in situations where shares are transferred to an intermediary holding company in exchange for a debt instrument. This arrangement allows tax-free dividends to be distributed by the subsidiary company to the intermediary holding, which then repays the shareholders through installment payments on the debt instrument. Once the bill is approved, this change will be effective from October 3, 2012.

The legislation also seeks to ensure that foreign companies do not use Danish companies as conduit companies to achieve tax-free dividend distributions between foreign companies and non-European Union (EU) parent companies. Under the proposed changes, outgoing dividends to foreign companies will be subject to taxation if redistributed by a Danish company in situations where the Danish company did not withhold tax on the incoming dividend, and it is not the beneficial owner of the incoming dividend. These new rules will not apply if dividend tax is waived under the EU Parent-Subsidiary Directive. The proposed change will apply from January 1, 2013.

The bill is due to be considered on November 20, 2012.

TAGS: tax | holding company | Denmark | tax avoidance | law | corporation tax | group taxation | legislation | withholding tax | dividends | legislation amendments

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