The Eastern High Court rules in favour of NetApp in the "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 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.

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 distributions of dividends made by two Danish companies, including the Danish NetApp subsidiary represented by Plesner in these proceedings. NetApp is a US based group established in 1992 which from its head office in Silicon Valley develops, produces and sells hardware and software to network systems. With subsidiaries in more than 40 countries, the US parent is in the S&P 500.

In 2012, NetApp won the case before Denmark's highest administrative tax appeals body, the National Tax Tribunal, after which the Ministry of Taxation brought the case before the Eastern High Court. 

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 NetApp 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, and 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 NetApp 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 has ruled in favour of NetApp (predominantly) and dismissed the Ministry of Taxation's claim that NetApp was obliged to withhold tax at source in connection with a dividend payment made by the Danish company back in 2005. On the other hand, the High Court has held that the company was obliged to withhold dividend tax in a smaller distribution made in 2006. As the winning party, NetApp has been awarded DKK 2.5 million in legal costs.

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

"It goes without saying that we are pleased that the High Court agreed with NetApp that there was no basis to withhold dividend tax in respect of the most significant part of the dividends."

"We will now first and foremost be scrutinizing the judgment of the High Court and consider it with our client."

On Plesner's website the beneficial owner cases are described 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 and Anders Endicott Pedersen.