RECENT DEVELOPMENTS IN INTERNATIONAL TAXATION DENMARK

Transcription

1 Attorney Niclas Holst Sonne Philip Heymans Allé 7 DK-2900 Hellerup Tel Fax Our ref RECENT DEVELOPMENTS IN INTERNATIONAL TAXATION DENMARK INTERNATIONAL BAR ASSOCIATION, 2015, VIENNA, AUSTRIA Horten Advokatpartnerselskab CVR

2 1. RECENT HIGHLIGHTS Page New international general anti-avoidance clause On 9 December 2014, the Member States in the European Union decided to introduce a new general anti-avoidance clause in Council Directive 2011/96/EU of 30 November 2011 on the common system of taxation applicable in the case of parent companies and subsidiaries of different Member States. Subsequently, the Danish parliament passed a bill on 21 April 2015 implementing the new clause into Danish law. However, the Danish parliament decided to broaden the scope of the Danish antiavoidance clause to include also - Council Directive 2003/49/EC on a common system of taxation applicable to interest and royalty payments made between associated companies of different Member States, - Council Directive 2009/133/EC on the common system of taxation applicable to mergers, divisions, partial divisions, transfers of assets and exchanges of shares concerning companies of different Member States and to the transfer of the registered office of an SE or SCE between Member States, and - all double taxation agreements covering Denmark. The objective of the new rule is to avoid that the directives or double taxation agreements are being used to evade taxation in cross-border transactions and arrangements. Tax evasion is said to exist if one or more non-real arrangements are put in place in order to obtain tax advantages inconsistently with the main purposes of the directives listed above and/or the double taxation agreements covering Denmark. If tax evasion is deemed to exist, the antiavoidance clause will limit any tax advantages contained in the directives and/or double taxation agreements. Cross-border transactions and arrangements which are based on sound commercial reasons and which reflect the economic reality will not be comprised by the new anti-avoidance rules. It has been discussed whether the wording of the Danish anti-avoidance clause is too vague due to the lack of clear definitions on what is required to constitute well-founded commercial reasons. Such uncertainty may in itself discourage international tax planning and investments in Denmark

3 irrespective of whether such investments are well-founded on commercial reasons or not. Page 3 The Danish anti-avoidance clause has effect on cross-border transactions and arrangements, which are carried through as of 1 May 2015 and onwards. 1.2 Lowering of the taxation on dividend payments from unlisted portfolio companies On 4 December 2014, a bill was passed in the Danish parliament easing the taxation on dividend payments from all unlisted portfolio shares to company shareholders. Portfolio shares are defined as shares in a company in which the company shareholder owns less than 10 per cent of the nominal share capital. According to the newly introduced rules only 70 per cent of the dividend from unlisted portfolio shares must be included in the company shareholder's taxable income. This is in contrast to the previous rules according to which 100 per cent of dividend payments were to be included in the taxable income. The effective tax rate on such dividend payments is consequently reduced from 23.5 per cent to per cent in 2015 and from 22 per cent to per cent in 2016 and subsequent income years. The new rules apply to both Danish company shareholders and foreign company shareholders having a permanent establishment in Denmark to which the portfolio shares are allocated. The intention with the lowering is to encourage more companies to invest in unlisted companies. 1.3 Hiring-out of labour With effect from 20 September 2012 the Danish rules on hiring-out of labour were amended. The main consequence of being considered hiringout of labour is that the Danish "employer" is liable to withhold 30 per cent Danish tax calculated based on the part of the contract payments relating to salaries. The rules introduced in 2012 amended the Danish definition of hiring-out of labour to apply to income from employment when the services provided related to work performed in Denmark and those services constituted an "integral part" of the business activities of the Danish company. This led to a very wide interpretation of the hiring-out of labour definition in

4 Denmark making it more difficult to avoid the hiring-out of labour rules when outsourcing work on independent contracts if the activities of the Danish company were within the same area of business as the independent contractor. Page 4 However, on 27 June 2014 a governmental notice was presented according to which the Danish tax authorities decided to relax the interpretation of the Danish hiring-out of labour rules. According to the governmental notice, it does not lead to hiring-out of labour for tax purposes simply because the Danish company and the foreign contractor work within the same area of business. On the contrary, it is decisive whether the performed work is an integrated part of the Danish company in such a way, that the Danish Company is to be seen as an employer with regard to the performed work. Further, it must be taken into consideration whether the Danish company possesses the power to exercise control over the employee, whether the Danish company remunerates the foreign company for the employee, whether the Danish company provides equipment and materials for the foreign employee and whether the foreign employee is subject to the working hours of the Danish company. The interpretation of the new Danish hiring-out of labour rules has therefore led to the hiring-out of labour rules returning to a state more similar to the interpretation under the former rules existing before September 2012 according to which the supply of a service by an independent contractor did not lead to the hiring-out of labour rules being applicable. The interpretation has had a retroactive effect for all agreements on hiring-out of labour entered into or amended as of 20 September Permanent establishment in Denmark for foreign investors in a Danish partnership On 20 December 2013 a binding ruling was published (SKM SR) relating to whether non-danish investors in a Danish transparent partnership (a Danish "kommanditselskab") were considered to have a permanent establishment in Denmark as a result of their investment in the Danish partnership. The Danish partnership invested in a non-danish real estate based investment. The Danish Tax Assessment Council was of the opinion that each of the foreign investors had a permanent establishment in Denmark. The primary reason for this was that the general meetings of the Danish partner-

5 ship were held at the offices of the Danish management company whereby the partnership was deemed to have a fixed place of business in Denmark through which the business of the partnership was carried on. Moreover, the Danish Tax Assessment Council emphasised that the entire investment project was set up, managed and controlled by the same group of individuals through the management company and the general partner. Page 5 Before the ruling was published, there was a general and firm understanding that the setting up in Denmark of a capital fund structure would not create a permanent establishment in Denmark of the foreign investors. This was among other things based on the fact that a number of binding rulings on similar structures had been obtained each of which concluded that no Danish permanent establishment was created for non- Danish investors. Therefore, the ruling was criticised as being both inconsistent with existing published decisions and harmful for the Danish investment environment. In a number of subsequent binding rulings published in the period from September 2014 to April 2015 (SKM SR, SKM SR, SKM SR and SKM SR), the effects of the binding ruling in SKM SR have been limited making it possible for foreign investors to invest in a Danish transparent partnership without being deemed to have a permanent establishment in Denmark. The recent binding rulings show that, provided there is a separation of control between the Danish transparent partnership and the management company whereby there is no identity between the persons and owners of the different vehicles in the structure, no permanent establishment in Denmark should exist for non-danish investors. Denmark, May 2015 Niclas Holst Sonne Partner, Head-of-tax