The Danish Ministry of Taxation presented a bill containing anti-avoidance rules regarding withholding tax on dividends. The purpose of the Draft Bill is to adjust certain unplanned consequences of the current rules. If adopted this bill applies from 1 January 2013 or later.

The main proposals in the Draft Bill are summarized below:

Under the Danish holding company regime dividends distributed by a Danish company to a foreign parent company are exempt from Danish withholding tax provided that the foreign parent company is resident within the EU or in a jurisdiction that has entered into a double tax treaty with Denmark.

However, in recent years the Danish tax authorities have attempted to deny this benefit of the Danish holding company regime to foreign parent companies if those companies have been established for treaty shopping purposes. The Danish tax authorities have argued that the foreign parent companies are not the beneficial owners of the dividends. So far the Danish tax authorities have initiated cases concerning dividends paid to foreign parent companies claiming more than 5 billion DKK in withholding taxes.

Until now, the Danish tax authorities have focused on foreign parent companies that are being used as intermediaries to avoid Danish withholding tax. However, the draft bill contains a new rule aimed at Danish companies that are being used for this purpose.

Under the draft bill the exemption from Danish withholding tax on dividends paid by a Danish company to a foreign parent company no longer applies if the dividends paid from the Danish company to the foreign parent company stem from dividends that the Danish company has received from a foreign subsidiary, and the Danish company is not the beneficial owner of the dividends received from the foreign subsidiary.

The new withholding tax requirement does not apply if withholding tax must be waived pursuant to the EU parent subsidiary directive (Directive 90/435 EEC).