Denmark Revises Tax Rules After Canceling Treaties with France, Spain by Arne Riis, Tobias Hansen, and Nikolaj Bjørnholm
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Volume 57, Number 2 January 11, 2010 (C) Tax Analysts 2010. All rights reserved. Tax Analysts does not claim copyright in any public domain or third party content. Denmark Revises Tax Rules After Canceling Treaties With France, Spain by Arne Riis, Tobias Hansen, and Nikolaj Bjørnholm Reprinted from Tax Notes Int’l, January 11, 2010, p. 130 Reprinted from Tax Notes Int’l, January 11, 2010, p. 130 COUNTRY (C) Tax Analysts 2010. All rights reserved. Tax Analysts does not claim copyright in any public domain or third party content. DIGEST Denmark Revises Tax Rules After Tax Exemption for Shipping Activities Canceling Treaties With France, Spain Through an exchange of notes between Denmark and France in 1930, it was agreed that Denmark would After repeatedly unsuccessful negotiations, Denmark exempt French shipping enterprises from taxes on ship- canceled its income tax treaties with France and Spain ping profits arising in Denmark. Likewise, France had with retroactive effect from January 1, 2009. The pri- to exempt Danish shipping enterprises from taxes on mary motivation for the cancellations was to ensure shipping profits arising in France. that Denmark obtained the right to tax payments from However, according to the former Denmark-France pension schemes to Danish residents. Regarding the tax treaty, the exchange of notes from 1930 did not treaty with France, Denmark also wanted to change apply if there was a tax treaty in force between the two the prevailing method for the avoidance of double countries. taxation from the exemption method to the credit In April 2009 the Danish and French authorities method because the exemption method prevented Den- agreed that the 1930 agreement should again enter into mark from levying Danish real estate tax on French force. At the same time, it was decided that the tax real estate held by Danish tax residents. exemption for shipping activities should cover both Since the cancellation of the tax treaties, each coun- shipping and aviation. try has levied tax (with regard to the other) according to its own national rules. This has resulted in several Withholding Tax on Services specific tax issues in Denmark. As a result of the cancellation of the tax treaties, Spain and France both withhold taxes on payments to Danish Domestic Law Changes Danish businesses from sources in Spain or France for The Danish parliament on April 30, 2009, adopted services provided by the Danish businesses, even if no bill L 125 to diminish some of the effects of the can- permanent establishment exists in the country where cellation of the tax treaty with France. the services are rendered. In France 33.33 percent of the gross amount of the payment is withheld, and in The former Denmark-France tax treaty had included Spain, 24 percent of the gross amount of the payment a special provision stating that remuneration for is withheld. Denmark does not apply a similar with- present or past services or employment, including sala- holding tax on services provided to Danish customers ries, pensions, wages, or any other remuneration paid by businesses abroad unless a PE is deemed to exist in to persons resident in one state by the other state itself Denmark. or by any other public legal entity in the other state was taxable only in the paying state. According to Denmark’s domestic legislation, it is possible to obtain — at least in part — credit relief for The rule meant that no Danish tax was levied on those withholding taxes. The Danish corporate tax rate individuals resident in Denmark who were receiving is 25 percent, which is also the maximum tax credit any of the aforementioned forms of remuneration (pri- available for Danish corporate entities. The relief pro- marily salary) from the French state. However, as a visions in section 33 of the Danish Tax Assessment result of the cancellation of the treaty, such remunera- Act allow for a deduction from the Danish tax on the tion became taxable in Denmark. foreign income in an amount equal to the amount paid To prevent residence taxation of such remuneration, abroad. the Danish parliament passed legislation establishing It has been argued that Danish suppliers should be that any of the aforementioned forms of remuneration in a position to invoke the EU principles in order to for present or past services or employment paid to a claim reimbursement of such withholding tax, though Danish tax resident by any public legal entity in France in practice, that process is likely to prove cumbersome. is taxable only in France. The Danish tax authorities have indicated that France TAX NOTES INTERNATIONAL JANUARY 11, 2010 • 1 COUNTRY DIGEST Reprinted from Tax Notes Int’l, January 11, 2010, p. 130 is revising its internal rules on withholding tax on ser- treaties. Furthermore, the Danish tax authorities have vice fees to comply with EU law, but to the knowledge made inquiries to the French and Spanish authorities of these authors, no relief for French or Spanish with- regarding their perspectives on the taxation of pay- holding tax has yet been implemented. ments from pension schemes to Danish tax residents if (C) Tax Analysts 2010. All rights reserved. Tax Analysts does not claim copyright in any public domain or third party content. new negotiations commence. Status of New Negotiations Based on the answers to the committee’s inquiries, On October 30, 2009, Danish Minister of Taxation the Danish tax authorities have decided that there is no Kristian Jensen made a statement to parliament’s Fis- basis to initiate new treaty negotiations with either cal Affairs Committee about the status of treaty nego- France or Spain. It is now uncertain whether Denmark tiations with France and Spain and whether new trea- will enter into new tax treaties with France and Spain ties with those countries would have retroactive effect. soon. ◆ According to Jensen’s statement, there has been an ongoing dialogue with both France and Spain to re- ♦ Arne Riis, Tobias Hansen, and Nikolaj Bjørnholm, solve tax issues arising from the cancellation of the Bech-Bruun, Copenhagen 2 • JANUARY 11, 2010 TAX NOTES INTERNATIONAL.