The Ministry of Taxation in Denmark has opened a consultation on a proposed bill to amend the rules regarding limited tax liability on interest from controlled debt on 12 March 2025.

The bill targets interest payments made by foreign entities with limited tax liability on income from real estate in Denmark, where the interest is allocated to the real estate. The aim is to address concerns raised by the Danish Tax Agency regarding the lack of a legal basis for withholding interest tax and to prevent tax planning strategies that allow intra-group interest payments to be deducted in Denmark, while the receiving company pays little or no tax on those payments.

A non-resident company with a permanent establishment (PE) in Denmark must apply a 22% withholding tax on interest and royalties paid to an affiliated non-resident company if the loan or intangible property is allocated to the PE and the debtor has a legal forum in Denmark.

If the debtor lacks a legal forum in Denmark, no withholding tax obligation arises. However, if an authorized person with a legal forum in Denmark makes the payment, they will be responsible for applying the withholding tax.

The proposal would also introduce amendments to withholding tax rules on interest and royalty payments, making it mandatory for the entity making the payment to withhold tax, regardless of its domicile. If the payment is made by a Danish-domiciled agent, they will be jointly responsible for withholding the tax.

The consultation will remain open until 26 March 2025.

The bill is expected to take effect on 1 July 2025.