EU Court decides on abuse in Danish interest tax cases

by Dentons



On February 26, 2019, the Court of Justice of the European Union (CJEU) decided on four cases (C-115/16, C-118/16, C-119/16 and C-299/16) referred by the Danish Courts regarding the grant or denial of an interest withholding tax exemption as provided for by the EU Interest & Royalty Directive (I/R Directive). (See our alert regarding the dividend withholding tax exemption cases C-116/16 and C-117/16 here).


In case C-115/16, five investment funds incorporated Luxembourg and Danish companies to acquire a target company in Denmark. None of the investment funds were established in a Member State of the European Union or in a country that had concluded a tax treaty with Denmark. In the period 2006-2008, the Danish company paid significant amounts of interest to Luxembourg company, and the Luxembourg company had similar debt and interest obligations towards the five investment funds.

In case C-118/16, a number of investment funds incorporated a Luxembourg venture capital vehicle and a Swedish two-tier structure to acquire a target company in Denmark. In 2006, the Luxembourg company granted a loan to its Swedish subsidiary of approx. €500mio and the other Swedish company subsequently granted a loan to almost the same amount to its Danish subsidiary. The Danish company paid significant amounts of interest to its Swedish parent company and the other Swedish company paid significant amounts of interest to its Luxembourg parent company. The interest was not taxed in Luxembourg (due to the SICAR-regime).

In case C-119/16, a US multinational owned a Cayman Island company, that in turn owned a Danish company. The Cayman company incorporated a Swedish two-tier structure and another Danish company to own the Danish group company. The Cayman company provided loans of approx. €900mio to the Swedish company and the Swedish subsidiary company granted similar loan amounts to the Danish company. The Danish company paid significant amounts of interest to the Swedish parent company and the other Swedish company paid similar amounts of interest to its Cayman parent company.

In case C-299/16, five Jersey investment funds incorporated a Luxembourg company to acquire a Danish company. The Jersey funds provided loans to the Luxembourg company, and the Luxembourg company provided similar loans to the Danish company. The Danish company paid significant amounts of interest to the Luxembourg parent company.

Based on the I/R Directive, the Danish companies wanted to pay interest to their respective parent companies in Luxembourg and Cyprus free of Danish interest withholding tax. The Danish tax authorities challenged these claims.

The I/R Directive refers to the concept of beneficial owner: a company shall be treated as the beneficial owner of interest only if it receives those payments for its own benefit and not as an intermediary, such as an agent, trustee or authorized signatory, for some other person. The I/R Directive allows an EU Member State to implement anti-abuse measures in its national law (or in a bilateral tax treaty), but there is no obligation to do so. In the relevant years, the Danish tax code did neither refer to the concept of beneficial owner nor contain anti-abuse rules with respect to the I/R Directive.

How must the concept of beneficial ownership be interpreted?

The Danish Courts wanted to know how the concept of beneficial owner of interest as mentioned in the I/R Directive needs to be interpreted. Must each EU Member State give its own meaning to it or can one for example rely on the commentaries to the OECD Model Tax Convention? The CJEU decided that it cannot be accepted that each EU Member State gives its own interpretation to this concept, and that it must be interpreted in line with the OECD commentaries. It further clarifies that if the recipient of the interest is not the beneficial owner, this does not automatically mean that the exemption does not apply. The exemption may still apply if the identified beneficial owner meets all conditions as mentioned in the I/R Directive.

Are domestic anti-abuse rules required to combat abuse?

The Danish Courts wanted to know whether Denmark had to deny the interest withholding tax exemption, even though it did not implement anti-abuse rules as referred to in the I/R Directive in its domestic law. The CJEU decided that an EU Member State must deny the interest withholding tax exemption if the exemption is not claimed to achieve the objectives of the EU I/R Directive, but to obtain this benefit by solely meeting the formal conditions. The CJEU recalls that a taxpayer has the right to choose the most beneficial tax alternative, but not if this is realized through a purely artificial structure that does not reflect economic reality, and is aimed to avoid the laws of an EU Member State.

The CJEU answers that an EU Member State is not required to implement anti-abuse rules in domestic law to combat abuse of EU law. An EU Member State is obliged to deny tax benefits stemming from EU law in case of abuse of EU law, whether anti-abuse rules are implemented in its domestic law or not.

What are indicators of abuse of EU law?

In order to demonstrate that there is abuse of law, it requires (i) a combination of objective circumstances in which, despite formal observance of the conditions laid down by the EU rules, the purpose of those rules has not been achieved and (ii) a subjective element consisting of the intention to obtain an advantage from the EU rules by artificially creating the conditions laid down for obtaining it. Therefore, all relevant facts of the cases need to be assessed and judged on by the Danish Courts. The CJEU provides the Danish Courts with guidance and states that a certain number of the following indicators may demonstrate there is an abuse of law, as long as these indicators result in a consistent conclusion:

  1. A group that is not established for reasons that reflect the economic reality, is purely formal and is mainly meant to obtain a tax advantage that is not in line with the object of the applicable law, can be regarded as an artificial structure. For example, if a conduit company is interposed to obtain a tax benefit and that company receives interest and pays that (to a large extent) shortly thereafter to its lender, who is not entitled to the same tax benefit, this forms an indicator of abuse of law.
  2. The receipt of interest is the sole activity of the conduit company, and the conduit company does not perform any economic activities. Whether the latter is the case needs to be assessed based on how the company is managed, its balance sheet, its costs structure, its expenses, its staff and its premises and equipment.
  3. An artificial arrangement may also be constituted by thinly capitalized structures through intra group debt and interest payments, resulting in the conduit company’s inability to have economic use of the interest. This does not only have to be the case if there is a contractual or legal obligation to pass on the interest. Also if ‘in substance’ the conduit company does not have the right to use and enjoy the interest. For the interpretation of the concept of beneficial ownership, the CJEU refers to the OECD commentaries.
  4. The introduction of new tax legislation (such as in Denmark or the USA) and the interposition of a conduit company around the time of introduction may also be an indicator of abuse of law.

Who has the burden of proof?

The company that claims the withholding tax exemption must demonstrate that the parent company meets the formal conditions for the exemption. If the tax authorities want to refuse the exemption based on an abuse of law, then the tax authorities have the burden of proof to demonstrate this. In case of a conduit company, the tax authorities do however not have any duty to demonstrate who the actual beneficial owner of the interest is. It seems that if the company is of the view that without the interposition of a conduit company, the interest withholding tax would have been less than re-assessed, that company must demonstrate who the actual beneficial owner is and what the interest tax burden would have been.

What does subject to income tax mean?

The I/R Directive requires that the recipient of the interest is subject to corporate income tax, without being exempt or having an option of being exempt. The Luxembourg SICAR in C-118/16 is subject to Luxembourg corporate income tax, but not in relation to the interest income received because of the SICAR-regime. In such case, based on the objective of the I/R Directive, the subject to tax condition is not fulfilled according to the CJEU.

Application of the EU freedoms

In case there is no abuse of law, the Danish Court wants to know whether Denmark can exercise all its withholding tax rights. First, the CJEU recalls that in the case of payments of interest due on loans between companies established in two different EU Member States, the questions of the Danish Courts must be examined in the light of the freedom of capital. Secondly, the CJEU determines that the fact that withholding tax is only levied in cross border situations forms a restriction of the freedom of capital. Such a restriction may however be justified to efficiently collect the taxes. However, if the Danish withholding tax needs to be paid upon payment of interest in a cross border situation immediately, and in case of a domestic situation only after two year, this forms a restriction of the freedom of capital that cannot be justified. Thirdly, Denmark charges a higher interest in case of late payment of withholding tax in cross border situation than in case of domestic situations. This forms a restriction of the freedom of capital which cannot be justified either. Finally, Denmark levies the withholding tax on the gross interest payments in case of a cross border situation, but takes into account the corresponding interest expenses in a domestic situation. The CJEU decides that this forms a restriction of the freedom of capital that cannot be justified if the non-resident recipient has incurred interest expenses to grant the loan to the Danish company.

Relevance for the Dutch tax practice

Arm’s length interest paid by a Dutch company is not subject to withholding tax. If a non-resident company directly or indirectly owns at least 5% of the nominal paid-up share capital of a Dutch company and receives interest income from that Dutch company, the interest is not subject to Dutch corporate income tax, unless the main reason or one of the main reasons to interpose such company was to avoid Dutch personal income tax that otherwise would have been due and in addition thereto the interest recipient was not established for valid commercial reasons that reflect economic reality. In case of an interposed parent company that creates a link between the activities of its parent company and the Dutch company, Dutch law provides for a safe harbor to assess whether the interposed parent company is established for valid commercial reasons that reflect economic reality (see below). Having regard to the above EU cases, if an interposed parent company’s sole or main activity is the holding of shares in the Dutch company and the grant of a loan to that Dutch company, special care must be given to the main reasons to interpose that parent company as well as to its level of economic substance. With respect to the latter, the safe harbor rule could function as guidance.

Substance requirements for a non-resident holding company

  1. At least 50% of the total statutory and executive members of the board of directors live or are established in the state in which the holding company is a resident (‘resident directors’);
  2. The resident directors of the holding company have the necessary professional knowledge to perform their duties well. These duties consist of at least the decision taking on basis of the holding company’s own responsibility and within the framework of the usual involvement of the holding company’s headquarter with respect to transactions to be concluded by the holding company as well as the proper dealing of the concluded transactions;
  3. The holding company has qualified personnel for the adequate execution and registration of the holding company’s transactions;
  4. The board decisions are taken in the state in which the holding company is a resident;
  5. The main bank accounts of the holding company are kept in the state in which the holding company is a resident;
  6. The bookkeeping of the holding company takes place in the state in which the holding company is a resident;
  7. The wage costs that form a remuneration for linking the activities within the shareholder chain amount to, translated to Dutch standards, at least €100,000; and
  8. The holding company owns or rents office space in the state in which the holding company is a resident for a period of at least 24 months, and which office is equipped to perform the linking role referred to under 7, which role is actually performed from that office.

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

© Dentons | Attorney Advertising

Written by:


Dentons on:

Readers' Choice 2017
Reporters on Deadline

"My best business intelligence, in one easy email…"

Your first step to building a free, personalized, morning email brief covering pertinent authors and topics on JD Supra:
*By using the service, you signify your acceptance of JD Supra's Privacy Policy.
Custom Email Digest
- hide

JD Supra Privacy Policy

Updated: May 25, 2018:

JD Supra is a legal publishing service that connects experts and their content with broader audiences of professionals, journalists and associations.

This Privacy Policy describes how JD Supra, LLC ("JD Supra" or "we," "us," or "our") collects, uses and shares personal data collected from visitors to our website (located at (our "Website") who view only publicly-available content as well as subscribers to our services (such as our email digests or author tools)(our "Services"). By using our Website and registering for one of our Services, you are agreeing to the terms of this Privacy Policy.

Please note that if you subscribe to one of our Services, you can make choices about how we collect, use and share your information through our Privacy Center under the "My Account" dashboard (available if you are logged into your JD Supra account).

Collection of Information

Registration Information. When you register with JD Supra for our Website and Services, either as an author or as a subscriber, you will be asked to provide identifying information to create your JD Supra account ("Registration Data"), such as your:

  • Email
  • First Name
  • Last Name
  • Company Name
  • Company Industry
  • Title
  • Country

Other Information: We also collect other information you may voluntarily provide. This may include content you provide for publication. We may also receive your communications with others through our Website and Services (such as contacting an author through our Website) or communications directly with us (such as through email, feedback or other forms or social media). If you are a subscribed user, we will also collect your user preferences, such as the types of articles you would like to read.

Information from third parties (such as, from your employer or LinkedIn): We may also receive information about you from third party sources. For example, your employer may provide your information to us, such as in connection with an article submitted by your employer for publication. If you choose to use LinkedIn to subscribe to our Website and Services, we also collect information related to your LinkedIn account and profile.

Your interactions with our Website and Services: As is true of most websites, we gather certain information automatically. This information includes IP addresses, browser type, Internet service provider (ISP), referring/exit pages, operating system, date/time stamp and clickstream data. We use this information to analyze trends, to administer the Website and our Services, to improve the content and performance of our Website and Services, and to track users' movements around the site. We may also link this automatically-collected data to personal information, for example, to inform authors about who has read their articles. Some of this data is collected through information sent by your web browser. We also use cookies and other tracking technologies to collect this information. To learn more about cookies and other tracking technologies that JD Supra may use on our Website and Services please see our "Cookies Guide" page.

How do we use this information?

We use the information and data we collect principally in order to provide our Website and Services. More specifically, we may use your personal information to:

  • Operate our Website and Services and publish content;
  • Distribute content to you in accordance with your preferences as well as to provide other notifications to you (for example, updates about our policies and terms);
  • Measure readership and usage of the Website and Services;
  • Communicate with you regarding your questions and requests;
  • Authenticate users and to provide for the safety and security of our Website and Services;
  • Conduct research and similar activities to improve our Website and Services; and
  • Comply with our legal and regulatory responsibilities and to enforce our rights.

How is your information shared?

  • Content and other public information (such as an author profile) is shared on our Website and Services, including via email digests and social media feeds, and is accessible to the general public.
  • If you choose to use our Website and Services to communicate directly with a company or individual, such communication may be shared accordingly.
  • Readership information is provided to publishing law firms and authors of content to give them insight into their readership and to help them to improve their content.
  • Our Website may offer you the opportunity to share information through our Website, such as through Facebook's "Like" or Twitter's "Tweet" button. We offer this functionality to help generate interest in our Website and content and to permit you to recommend content to your contacts. You should be aware that sharing through such functionality may result in information being collected by the applicable social media network and possibly being made publicly available (for example, through a search engine). Any such information collection would be subject to such third party social media network's privacy policy.
  • Your information may also be shared to parties who support our business, such as professional advisors as well as web-hosting providers, analytics providers and other information technology providers.
  • Any court, governmental authority, law enforcement agency or other third party where we believe disclosure is necessary to comply with a legal or regulatory obligation, or otherwise to protect our rights, the rights of any third party or individuals' personal safety, or to detect, prevent, or otherwise address fraud, security or safety issues.
  • To our affiliated entities and in connection with the sale, assignment or other transfer of our company or our business.

How We Protect Your Information

JD Supra takes reasonable and appropriate precautions to insure that user information is protected from loss, misuse and unauthorized access, disclosure, alteration and destruction. We restrict access to user information to those individuals who reasonably need access to perform their job functions, such as our third party email service, customer service personnel and technical staff. You should keep in mind that no Internet transmission is ever 100% secure or error-free. Where you use log-in credentials (usernames, passwords) on our Website, please remember that it is your responsibility to safeguard them. If you believe that your log-in credentials have been compromised, please contact us at

Children's Information

Our Website and Services are not directed at children under the age of 16 and we do not knowingly collect personal information from children under the age of 16 through our Website and/or Services. If you have reason to believe that a child under the age of 16 has provided personal information to us, please contact us, and we will endeavor to delete that information from our databases.

Links to Other Websites

Our Website and Services may contain links to other websites. The operators of such other websites may collect information about you, including through cookies or other technologies. If you are using our Website or Services and click a link to another site, you will leave our Website and this Policy will not apply to your use of and activity on those other sites. We encourage you to read the legal notices posted on those sites, including their privacy policies. We are not responsible for the data collection and use practices of such other sites. This Policy applies solely to the information collected in connection with your use of our Website and Services and does not apply to any practices conducted offline or in connection with any other websites.

Information for EU and Swiss Residents

JD Supra's principal place of business is in the United States. By subscribing to our website, you expressly consent to your information being processed in the United States.

  • Our Legal Basis for Processing: Generally, we rely on our legitimate interests in order to process your personal information. For example, we rely on this legal ground if we use your personal information to manage your Registration Data and administer our relationship with you; to deliver our Website and Services; understand and improve our Website and Services; report reader analytics to our authors; to personalize your experience on our Website and Services; and where necessary to protect or defend our or another's rights or property, or to detect, prevent, or otherwise address fraud, security, safety or privacy issues. Please see Article 6(1)(f) of the E.U. General Data Protection Regulation ("GDPR") In addition, there may be other situations where other grounds for processing may exist, such as where processing is a result of legal requirements (GDPR Article 6(1)(c)) or for reasons of public interest (GDPR Article 6(1)(e)). Please see the "Your Rights" section of this Privacy Policy immediately below for more information about how you may request that we limit or refrain from processing your personal information.
  • Your Rights
    • Right of Access/Portability: You can ask to review details about the information we hold about you and how that information has been used and disclosed. Note that we may request to verify your identification before fulfilling your request. You can also request that your personal information is provided to you in a commonly used electronic format so that you can share it with other organizations.
    • Right to Correct Information: You may ask that we make corrections to any information we hold, if you believe such correction to be necessary.
    • Right to Restrict Our Processing or Erasure of Information: You also have the right in certain circumstances to ask us to restrict processing of your personal information or to erase your personal information. Where you have consented to our use of your personal information, you can withdraw your consent at any time.

You can make a request to exercise any of these rights by emailing us at or by writing to us at:

Privacy Officer
JD Supra, LLC
10 Liberty Ship Way, Suite 300
Sausalito, California 94965

You can also manage your profile and subscriptions through our Privacy Center under the "My Account" dashboard.

We will make all practical efforts to respect your wishes. There may be times, however, where we are not able to fulfill your request, for example, if applicable law prohibits our compliance. Please note that JD Supra does not use "automatic decision making" or "profiling" as those terms are defined in the GDPR.

  • Timeframe for retaining your personal information: We will retain your personal information in a form that identifies you only for as long as it serves the purpose(s) for which it was initially collected as stated in this Privacy Policy, or subsequently authorized. We may continue processing your personal information for longer periods, but only for the time and to the extent such processing reasonably serves the purposes of archiving in the public interest, journalism, literature and art, scientific or historical research and statistical analysis, and subject to the protection of this Privacy Policy. For example, if you are an author, your personal information may continue to be published in connection with your article indefinitely. When we have no ongoing legitimate business need to process your personal information, we will either delete or anonymize it, or, if this is not possible (for example, because your personal information has been stored in backup archives), then we will securely store your personal information and isolate it from any further processing until deletion is possible.
  • Onward Transfer to Third Parties: As noted in the "How We Share Your Data" Section above, JD Supra may share your information with third parties. When JD Supra discloses your personal information to third parties, we have ensured that such third parties have either certified under the EU-U.S. or Swiss Privacy Shield Framework and will process all personal data received from EU member states/Switzerland in reliance on the applicable Privacy Shield Framework or that they have been subjected to strict contractual provisions in their contract with us to guarantee an adequate level of data protection for your data.

California Privacy Rights

Pursuant to Section 1798.83 of the California Civil Code, our customers who are California residents have the right to request certain information regarding our disclosure of personal information to third parties for their direct marketing purposes.

You can make a request for this information by emailing us at or by writing to us at:

Privacy Officer
JD Supra, LLC
10 Liberty Ship Way, Suite 300
Sausalito, California 94965

Some browsers have incorporated a Do Not Track (DNT) feature. These features, when turned on, send a signal that you prefer that the website you are visiting not collect and use data regarding your online searching and browsing activities. As there is not yet a common understanding on how to interpret the DNT signal, we currently do not respond to DNT signals on our site.

Access/Correct/Update/Delete Personal Information

For non-EU/Swiss residents, if you would like to know what personal information we have about you, you can send an e-mail to We will be in contact with you (by mail or otherwise) to verify your identity and provide you the information you request. We will respond within 30 days to your request for access to your personal information. In some cases, we may not be able to remove your personal information, in which case we will let you know if we are unable to do so and why. If you would like to correct or update your personal information, you can manage your profile and subscriptions through our Privacy Center under the "My Account" dashboard. If you would like to delete your account or remove your information from our Website and Services, send an e-mail to

Changes in Our Privacy Policy

We reserve the right to change this Privacy Policy at any time. Please refer to the date at the top of this page to determine when this Policy was last revised. Any changes to our Privacy Policy will become effective upon posting of the revised policy on the Website. By continuing to use our Website and Services following such changes, you will be deemed to have agreed to such changes.

Contacting JD Supra

If you have any questions about this Privacy Policy, the practices of this site, your dealings with our Website or Services, or if you would like to change any of the information you have provided to us, please contact us at:

JD Supra Cookie Guide

As with many websites, JD Supra's website (located at (our "Website") and our services (such as our email article digests)(our "Services") use a standard technology called a "cookie" and other similar technologies (such as, pixels and web beacons), which are small data files that are transferred to your computer when you use our Website and Services. These technologies automatically identify your browser whenever you interact with our Website and Services.

How We Use Cookies and Other Tracking Technologies

We use cookies and other tracking technologies to:

  1. Improve the user experience on our Website and Services;
  2. Store the authorization token that users receive when they login to the private areas of our Website. This token is specific to a user's login session and requires a valid username and password to obtain. It is required to access the user's profile information, subscriptions, and analytics;
  3. Track anonymous site usage; and
  4. Permit connectivity with social media networks to permit content sharing.

There are different types of cookies and other technologies used our Website, notably:

  • "Session cookies" - These cookies only last as long as your online session, and disappear from your computer or device when you close your browser (like Internet Explorer, Google Chrome or Safari).
  • "Persistent cookies" - These cookies stay on your computer or device after your browser has been closed and last for a time specified in the cookie. We use persistent cookies when we need to know who you are for more than one browsing session. For example, we use them to remember your preferences for the next time you visit.
  • "Web Beacons/Pixels" - Some of our web pages and emails may also contain small electronic images known as web beacons, clear GIFs or single-pixel GIFs. These images are placed on a web page or email and typically work in conjunction with cookies to collect data. We use these images to identify our users and user behavior, such as counting the number of users who have visited a web page or acted upon one of our email digests.

JD Supra Cookies. We place our own cookies on your computer to track certain information about you while you are using our Website and Services. For example, we place a session cookie on your computer each time you visit our Website. We use these cookies to allow you to log-in to your subscriber account. In addition, through these cookies we are able to collect information about how you use the Website, including what browser you may be using, your IP address, and the URL address you came from upon visiting our Website and the URL you next visit (even if those URLs are not on our Website). We also utilize email web beacons to monitor whether our emails are being delivered and read. We also use these tools to help deliver reader analytics to our authors to give them insight into their readership and help them to improve their content, so that it is most useful for our users.

Analytics/Performance Cookies. JD Supra also uses the following analytic tools to help us analyze the performance of our Website and Services as well as how visitors use our Website and Services:

  • HubSpot - For more information about HubSpot cookies, please visit
  • New Relic - For more information on New Relic cookies, please visit
  • Google Analytics - For more information on Google Analytics cookies, visit To opt-out of being tracked by Google Analytics across all websites visit This will allow you to download and install a Google Analytics cookie-free web browser.

Facebook, Twitter and other Social Network Cookies. Our content pages allow you to share content appearing on our Website and Services to your social media accounts through the "Like," "Tweet," or similar buttons displayed on such pages. To accomplish this Service, we embed code that such third party social networks provide and that we do not control. These buttons know that you are logged in to your social network account and therefore such social networks could also know that you are viewing the JD Supra Website.

Controlling and Deleting Cookies

If you would like to change how a browser uses cookies, including blocking or deleting cookies from the JD Supra Website and Services you can do so by changing the settings in your web browser. To control cookies, most browsers allow you to either accept or reject all cookies, only accept certain types of cookies, or prompt you every time a site wishes to save a cookie. It's also easy to delete cookies that are already saved on your device by a browser.

The processes for controlling and deleting cookies vary depending on which browser you use. To find out how to do so with a particular browser, you can use your browser's "Help" function or alternatively, you can visit which explains, step-by-step, how to control and delete cookies in most browsers.

Updates to This Policy

We may update this cookie policy and our Privacy Policy from time-to-time, particularly as technology changes. You can always check this page for the latest version. We may also notify you of changes to our privacy policy by email.

Contacting JD Supra

If you have any questions about how we use cookies and other tracking technologies, please contact us at:

- hide

This website uses cookies to improve user experience, track anonymous site usage, store authorization tokens and permit sharing on social media networks. By continuing to browse this website you accept the use of cookies. Click here to read more about how we use cookies.