A Danish operating company under a Dutch parent is a structure the Danish authorities see constantly. The question is never whether the parent subsidiary directive exists. It is whether the Dutch company is the beneficial owner of the dividend, and that question is answered on facts the group either documented years earlier or did not.
The charging rule itself is short. Section 2, subsection 1, letter c of the selskabsskattelov makes a foreign company liable to Danish tax on dividends from Danish sources within section 16 A, subsections 1 and 2 of the ligningslov. What follows in the same letter qualifies that charge in both directions. The second sentence takes out of it dividends from investment companies and from investment institutions with minimum taxation. The third sentence works the other way and extends the charge, treating a contribution to a group connected company within section 31 D as a dividend where the recipient would have been taxable on a dividend under this provision had it been the parent of the contributor. The exemptions come after those, and each of them has conditions sitting behind it.
The two doors out of the charge
The fourth sentence of letter c removes from the charge dividends on datterselskabsaktier within section 4 A of the aktieavancebeskatningslov, where taxation of dividends from the subsidiary must be waived or reduced under Directive 2011/96/EU or under a double tax treaty with the Faroe Islands, Greenland or the state in which the parent is resident. That is the principal route, and it is available on either the directive or the treaty.
The eighth sentence removes dividends on koncernselskabsaktier within section 4 B that are not datterselskabsaktier, where the receiving group company is resident in a state within the European Union or the European Economic Area and the dividend taxation would have been waived or reduced under the directive or under the treaty with that state had the shares been datterselskabsaktier. That is the route for a group holding built on control rather than on percentage.
The fifth to seventh sentences deal with a narrower case. Even where the conditions of the fourth sentence are not met, the charge still does not reach dividends on datterselskabsaktier if the receiving company is resident in the Faroe Islands, in Greenland or in a state that is a member of the European Union but the dividend is taxed at the level of its participants in the year of distribution and the company would have fallen within section 1, subsection 1, number 2 had it been resident in Denmark. The sixth sentence makes that conditional on the participants themselves satisfying the fourth sentence, and the seventh extends both to a receiving company resident in an EEA state that has a double tax treaty with Denmark.
Read together, the provisions are generous in form. What they share is that the exemption is expressed by reference to whether taxation must be waived or reduced under the directive or under a treaty, and neither instrument gives relief unconditionally. Directive 2011/96/EU exempts from withholding tax the profits a subsidiary distributes to its parent company, in article 5, but article 2 confines it to companies taking one of the forms listed in Annex I Part A, treated as resident in a member state for tax purposes and subject, without the possibility of an option or of being exempt, to one of the taxes listed in Annex I Part B. Article 3 attributes parent status on a minimum holding of ten per cent in the capital. Article 1, paragraph 2 then obliges member states not to grant the benefits of the directive to an arrangement or series of arrangements which, having been put into place for the main purpose or one of the main purposes of obtaining a tax advantage that defeats the object or purpose of the directive, are not genuine having regard to all relevant facts and circumstances, and paragraph 4 preserves domestic and agreement based provisions against evasion, fraud and abuse on top of that.
Ten per cent, and what sits behind it
Datterselskabsaktier under section 4 A are shares held by a company owning at least ten per cent of the share capital of the subsidiary, subject to subsections 2, 3 and 7 of the same section. Subsection 2 makes it a condition that the subsidiary is within section 1 of the selskabsskattelov or is a comparable foreign company liable to corporation tax without exemption in the state where it is resident, and that the competent authority of that state must exchange information with the Danish tax authorities. Subsection 3 is the anti-avoidance rule. Where a holding is routed through an intermediate company, the shares are treated as owned directly by those of its direct and indirect shareholders that hold at least ten per cent at every level between the shareholder and the intermediate company, but only where five conditions are all met, among them that the intermediate company’s primary function is the ownership of subsidiary and group company shares and that it carries on no real economic activity in respect of the shareholding.
The treaty threshold matches. The convention between the Netherlands and Denmark signed in Copenhagen on 1 July 1996, in force since 6 March 1998, provides in article 10, paragraph 3 that the state of which the paying company is a resident shall not levy a tax on dividends paid by that company where the beneficial owner of the dividends is a company resident in the other state holding directly at least ten per cent of the capital of the company paying them. Paragraph 2 sets a fifteen per cent cap on the gross amount of the dividends where the recipient is the beneficial owner and paragraph 3 does not apply.
A Dutch parent holding a Danish ApS outright clears the threshold on each of those instruments without effort. The threshold is not where these structures fail.
What the exemption is really conditioned on
The two routes fail for different reasons, and the difference is worth holding on to. The treaty confers its benefit on the beneficial owner of the dividends, in terms, in both paragraph 2 and paragraph 3 of article 10. The directive contains no beneficial ownership clause at all. What it contains is the anti-abuse rule in article 1, paragraph 2, and the Court of Justice gave that concept its content in the judgments of 26 February 2019 in the joined cases C-115/16, C-118/16, C-119/16 and C-299/16 and in the joined cases C-116/16 and C-117/16. Skattestyrelsen’s own guidance records that the abuse assessment under section 3 of the ligningslov coincides with the definition of abuse expressed in those decisions on beneficial ownership of dividends and interest.
The Danish courts then applied both to facts. The Supreme Court gave judgment on 9 January 2023 in the first two dividend withholding cases, deciding when a foreign parent is the beneficial owner under a double tax treaty and when there is abuse of rights under the directive, and then making a concrete assessment of the individual distributions. Parent companies resident in Cyprus and in Luxembourg were held taxable under section 2, subsection 1, letter c, because there was abuse under the directive and because they could not be regarded as the beneficial owners under the treaties. In one of the two cases, which concerned two dividends, the court found that one of them was nonetheless exempt under section 2, subsection 1, letter c read with the Danish treaty with the United States. What the judgment settles is a method, not an outcome, and Skattestyrelsen reads it as a transaction based assessment made for each distribution rather than once for the structure.
The statute used to address onward flows expressly in the same letter. Until the end of 2024 the exemption was withheld where the dividend from the Danish company was an onward distribution of a dividend that company had itself received, directly or indirectly, on foreign subsidiary or group company shares and of which it had not been the beneficial owner. Lov nr. 1691 of 30 December 2024 repealed those two sentences and, in the same provision, wrote the beneficial ownership requirement into section 13, subsection 1, number 2 of the selskabsskattelov instead, so that it is now the Danish company’s own exemption for dividends on subsidiary and group company shares that depends on its being the beneficial owner of the distribution it receives. Both changes have effect for dividends distributed on or after 1 January 2025. The condition did not disappear. It moved one storey down, and an article that still locates it in letter c is describing repealed law.
Wherever the condition sits, the test does not stop at the Dutch parent. It follows the money. A Dutch BV that receives a Danish dividend and holds it, invests it or uses it in its own business is answering the question well. One that receives it and pays substantially the same amount onward under an existing obligation is answering it badly, and the fact that it is properly incorporated, resident and within the directive’s annex does not change the answer.
The rate if the exemption fails, and why fifteen is not available
Section 2, subsection 8 sets the tax under letter c at 22 per cent of the total dividends, unless the third to tenth sentences provide otherwise. That is the figure to model as the downside, and it applies to the gross dividend rather than to a margin.
There is a worse figure. The tax is 44 per cent on dividends on shares within sections 4 A or 4 B of the aktieavancebeskatningslov where the beneficial owner of the dividend is resident for tax purposes in one of the countries listed in section 5 H, subsection 2 of the ligningslov. A group whose beneficial owner sits in a listed jurisdiction is not looking at a failed exemption but at a doubled charge.
There is also a lower figure that is not available here. The tax is 15 per cent where the competent authority of the state, of Greenland or of the Faroe Islands in which the beneficial owner of the dividend is resident must exchange information with the Danish authorities under a double tax treaty, another international agreement or convention or an administratively concluded agreement on assistance in tax matters, and the rate is reduced to nil where the dividend is received on tax free portfolio shares within section 4 C. But the sixth sentence makes that 15 per cent conditional on the company owning less than ten per cent of the share capital of the distributing company, the seventh adds an aggregation rule with group connected parties for a company resident outside the European Union, the eighth disapplies that aggregation rule for a company resident in an EEA state that has a double tax treaty with Denmark, and the ninth requires that the beneficial owner not have controlling influence in the distributing company within section 2 of the ligningslov unless it is resident in the European Union or its taxation is to be reduced under a treaty.
The result is precise and counterintuitive. The 15 per cent domestic rate is a portfolio rate. A Dutch parent holding ten per cent or more falls outside it by construction, so a parent that fails the beneficial owner test does not descend gently to 15 per cent. It lands on 22 per cent, and it has lost the treaty cap at the same time, because the treaty confers its benefit on the beneficial owner as well.
Withholding happens before any of this is decided
Section 65, subsection 1 of the kildeskattelov requires the distributing company to withhold dividend tax of 27 per cent of the total dividend, subject to the exceptions set out in the same section. Subsection 4 is the exception that matters here: no dividend tax is withheld on a dividend that a company resident abroad receives from a company resident in Denmark where that dividend is not within the charge in section 2, subsection 1, letter c, except where it falls outside the charge by virtue of the fifth to seventh sentences of that letter. Where 27 per cent has been withheld and the final liability is lower, Skattestyrelsen’s guidance directs the recipient to ask for a refund of the difference, and article VII of the protocol to the convention requires an application for the refund of tax levied in excess of the treaty amount to be lodged with the competent authority of the state that levied it within three years after the end of the calendar year in which the tax was levied.
That sequencing is the operational problem. The obligation sits on the Danish company, at the moment of distribution, and is discharged on the basis of what that company can establish then. A dispute about beneficial ownership resolved two years later in the parent’s favour does not put the cash back on the original timetable.
The exposure is not only the parent’s. Under section 69, subsection 1 of the kildeskattelov a company that fails to withhold, or withholds too little, is directly answerable to the public purse for the missing amount unless it shows that no negligence was shown on its part in observing the act, and in case 69/2021 the withholding company was held answerable on that footing under section 69, subsection 1 read with section 65, subsection 1, the Supreme Court holding that the claim for the amount not withheld carried interest and compound interest under the opkrævningslov. That is why Danish directors in a foreign group are often more cautious here than the group’s own advisers.
The clause behind the clause
Even where the beneficial owner test is met, section 3 of the ligningslov applies. It requires arrangements or series of arrangements to be disregarded where they are put in place with the main purpose, or one of the main purposes, of obtaining a tax advantage that defeats the object and purpose of the tax law, and are not genuine having regard to all relevant facts and circumstances. An arrangement may comprise more than one step or part, and it is regarded as not genuine to the extent that it is not put in place for valid commercial reasons reflecting economic reality. Subsection 5 carries the same idea into treaty benefits, and subsection 6 gives subsections 1 to 4 precedence over it where the treaty is with a state that is a member of the European Union.
Skattestyrelsen treats the three conditions drawn from that provision, a tax advantage, a main purpose of obtaining it that works against the object and purpose of the tax law, and an arrangement that is not genuine, as cumulative, and requires a concrete weighing of the advantages of the arrangement against its commercial justification.
The treaty carries its own version of the same idea, and it got there bilaterally. The protocol signed in Copenhagen on 9 May 2018, in force on 31 December 2018 and effective for taxable years and periods beginning and taxable events occurring on or after 1 January 2019, replaced the title and preamble of the convention with language about not creating opportunities for non-taxation or reduced taxation through treaty shopping, and inserted a new article 23a under which a benefit is not granted in respect of an item of income if it is reasonable to conclude, having regard to all relevant facts and circumstances, that obtaining that benefit was one of the principal purposes of any arrangement or transaction that resulted directly or indirectly in it, unless it is established that granting it would be in accordance with the object and purpose of the relevant provisions of the convention. The protocol left article 10 as it stood. The two states did this without recourse to the multilateral instrument: the list of agreements Denmark has notified as covered by that convention, published with the convention’s own text, runs to sixty four entries and does not include the Netherlands, so the Danish consolidated text and the Dutch consolidated text of the treaty are in this instance complete.
The tests fail in different places. Beneficial ownership is about who has the power to enjoy the dividend. Section 3 is about why the structure exists. A Dutch holding company with genuine decision making over its funds can satisfy the first and still be caught by the second if it was inserted for no reason other than to reach the directive.
What the Danish authority looks at in the Dutch parent
The enquiry is evidential rather than formal, and the material that answers it is the same material a Dutch adviser would assemble for a Dutch substance file. Where the board meets and who sits on it. Whether the decisions on the dividend are taken there, minuted there, and capable of going the other way. Whether the parent has accounts showing it retained or deployed what it received, its own bank arrangements, its own staff or a real service arrangement, and activity beyond receiving one dividend a year.
Two facts do most of the damage. An onward payment of substantially the same amount within a short period, particularly where it discharges a debt incurred to acquire the Danish shares. And the absence of any decision that could have gone differently, where the parent has no discretion because the funds were committed before they arrived.
Two facts do most of the work. Genuine retention or reinvestment of the dividend at the level of the parent. And a documented commercial reason for the parent to exist that predates the dividend and is not itself a tax reason.
Before the first distribution, not after the first enquiry
The Danish structure rewards preparation more than most, because the tests are applied to facts rather than to documents drafted for the purpose. A parent that has been holding, deciding and retaining for several years has a file that assembles itself. A parent created in the quarter before the dividend has a file that has to be argued.
The sequence that survives an enquiry is unglamorous. A parent established before the group needed it has a history that predates the transaction the authority will examine. A parent with something to do beyond holding one subsidiary has a commercial answer available when section 3 is put to it. A dividend kept at the parent, with the decision to keep it recorded, gives beneficial ownership a factual answer rather than a legal argument. And a group that has priced 22 per cent as its downside is weighing the cost of substance against a number it has already seen, rather than against an exemption it has assumed.
This article is informational and does not constitute tax or legal advice. The treatment of any structure depends on its facts and on the law of each jurisdiction involved. Each engagement is subject to scope and applicable regulation.