• Professional News
  • 17 July 2012

EU Commission deems Danish withholding tax on foreign UCITS a violation of EU law

Just days before the EJC ruling in the Santander-case, the Danish Government received a letter of formal notice from the European Commission concerning the Danish withholding tax regime applicable to UCITS. As such, the Danish Ministry of Taxation now struggles both in national and European legal forums to uphold the Danish withholding tax regime.

On 30 April 2012, the Danish Government received a formal notice sent by the European Commission concerning the Danish withholding tax regime applicable to UCITS. In a statement of 3 July 2012 to the Danish Parliament, the Danish Ministry of Taxation accounts for the position of the Commission which considers the Danish withholding tax regime applicable to UCITS to be a violating of EU law and the position of Danish Ministry of Taxation in relation hereto.

According to the statement, the Commission states that the Danish rules prevent Danish investors from investing in foreign UCITS and prevent foreign UCITS from selling their services to Danish consumers. As such the Commission claims, that the Danish rules may be considered a restriction on the free movement of capital and services under the EU Treaty.

While struggling to uphold the Danish withholding tax regime both in national and European legal forums, the Danish Ministry of Taxation has simultaneously reduced the interest rate applicable to withholding tax refunds from approx. 7.45 % to 1.3 % p.a. with effect as of 1 July 2012 regardless of whether the reclaim was submitted prior to this date and introduced a 6 months grace period during which no interest is accrued. Further, certain specific requirements for utilizing a unique tax beneficial Danish UCITS regime are being abandoned as of 1 January 2013 for the benefit of especially foreign UCITS.

The Danish Ministry of Taxation claims that any differential treatment of Danish and foreign UCITS is justified under the need to safeguard the balanced allocation between the Member States of the power to tax. The ECJ ruling in the Santander-case seems to suggest that the claimed justifications will not be accepted by the ECJ and even prior to the ruling in Santander, the Commission sent a formal notice to Denmark in this respect.

Even though the Danish UCITS tax regime does have some unique characteristics, it is our assessment that the existing dividend withholding regime as applicable to the foreign UCITS may not prevail as being compliant with EU law.

(Source: Danish Parliament - http://www.ft.dk/samling/20111/almdel/SAU/bilag/316/index.htm)

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