The Eastern High Court rules against the tax payers in two new "beneficial owner" cases

The issue of the "beneficial owner" cases is whether Danish companies paying interest or dividends should have withheld tax with regard to payments that are typically made to parent companies resident in other EU Member States. In the cases, the Ministry of Taxation claims that the parent companies are not the "beneficial owners" of the received interest or dividends and that the "beneficial owners" are residents of states outside of the EU or states without a double taxation agreement with Denmark why the Danish subsidiaries should have withheld tax at source in connection with the payments. Because they did not make such withholding, the Ministry of Taxation is of the opinion that the Danish companies have acted "negligently" and therefore are liable for the tax.  

Over the past years the Danish tax authorities have raised around 150 cases concerning "beneficial ownership" with tax claims totaling several billions of Danish kroner.

As far back in time as in 2011, the Eastern High Court gave its first judgment in the beneficial owner cases, namely in the ISS case, in which Plesner's client, ISS, prevailed. Almost 10 years later - in May 2021 - the Eastern High Court then gave two judgments in the two first and more recent pilot cases - two dividend withholding tax cases. In one of them the High Court found in favour of the tax payer (NetApp) - represented by Plesner - whereas it ruled against the tax payer (TDC) in the other case. Both judgments have been appealed to the Supreme Court where the hearing will take place over 5 court days in December 2022. 

In the two cases, in which the Eastern High Court has now given its judgments, the tax authorities have raised considerable claims regarding non-withheld tax at source in connection with interest payments made by two Danish companies, including the Danish Takeda subsidiary (then Nycomed A/S) represented by Plesner in these proceedings. Takeda is a large Japanese pharma group that acquired the Nycomed group from a consortium of private equity funds in 2011. 

The Takeda/Nycomed case was raised in 2010 by the Danish tax authorities and brought before the Eastern High Court in 2012 by Takeda.

Multiple "beneficial owner" cases are pending before both the Eastern and the Western High Court, and, in 2016, the High Court referred a diversity of preliminary questions to the Court of Justice of the European Union ("CJEU") in six test cases, including the Takeda case. These questions concerned the interpretation of EU law, in particular in relation to the Interest and Royalties Directive and the Parent-Subsidiary Directive and the implementation of these Directives into Danish law, as well as the interpretation of the provision on free movement of capital of the EU Treaty. The Advocate General of the CJEU held in her opinion (supported by the European Commission) that Takeda should prevail in the case, however, on 26 February 2019 the CJEU gave its judgments in the cases that were clearly - in the eyes of most observers - to the advantage of the tax authorities.

In today's judgment, the Eastern High Court generally rules that Takeda was obliged to withhold tax at source in connection with interest payments made by the Danish company in 2007-2009 to its Swedish parent company, and, further, that the Danish company acted negligently in its omission to withhold the tax. The company is therefore liable vis-à-vis the Danish tax authorities for the tax claim. 

In a reaction to the judgment, one of the counsels arguing the case, Lasse Esbjerg Christensen, Plesner, says:

"It goes without saying that we are not pleased with this outcome, but we will now first and foremost be scrutinizing the reasoning by the three High Court judges and consider the judgment with our client."

"The High Court did agree with Takeda that the interest payments in this case all remained within the EU - i.e., they did not flow through to a company in a tax haven. However, the High Court did not agree in Takeda's interpretation of the Denmark-Luxembourg tax treaty in the specific circumstances why the High Court ruled in favour of the Ministry of Taxation."

And further with respect to a potential appeal of the judgment:

"These cases involve a great deal of extremely complicated questions of principle, why I believe it has been the expectation that it would be up to the Supreme Court - no matter the outcome before the High Court - to have the final say. This is also what we have seen in the two dividend withholding tax cases that were decided by the High Court earlier this year, and it is still in line with our expectations in this case."   

Read about the beneficial owner cases in more detail.

The Eastern High Court has published the judgment here (in Danish)

Plesner's team conducting the cases consists of attorneys Lasse Esbjerg Christensen, Hans Severin Hansen, Søren Lehmann Nielsen, Mathias Kjærsgaard Larsen and Anders Endicott Pedersen.