Denmark: Tax on dividends to charitable organisations incompatible with EU law

9.18.2020

The Danish Government has accepted that a tax of 22 % on dividends paid to charitable organisations established in the EU/EEA conflicts with EU law. A bill will be introduced in December 2020 to exempt those organisations from tax on dividends.

In a letter of formal notice to the Danish Government, the European Commission stated that it constitutes an unjustifiable discrimination of non-resident charitable organisations in conflict with the EU treaty when Denmark taxes dividends paid to charitable organisations established in the EU/EEA at a rate of 22 %, while  exempting Danish charitable organisations from such tax.


The Danish Tax Ministry has acknowledged that the current rules conflict with EU law. Therefore, a new bill is to be introduced in December 2020 with the purpose of making the necessary amendments to exempt both Danish and foreign charitable organisations from dividend tax.


The European Commission and the Danish Tax Ministry address charitable organisations only. However, several other Danish entities remain exempt from dividend tax, while comparable non-resident EU/EEA entities are subject to tax.  This discrepancy will mostly likely be raised during the consultation process preparing the amendment for adoption by Parliament.


The acknowledgment comes in the wake of other Danish rules on dividend taxation conflicting with EU law. In case C-480/16 - Fidelity Funds, the European Court of Justice held Danish tax on dividends paid by Danish companies to EU/EEA based investment funds incompatible with EU law (see our previous coverage). However, subsequently the Danish High Court held that Fidelity Funds did not qualify for exemption. The case is now awaiting hearing before the Danish Supreme Court.