Defensive measures underway against EU blacklist countries

Background to the Bill

The Bill, presented by the Danish Ministry of Taxation, seeks to implement defensive measures against countries on the EU’s list of non-cooperative jurisdictions for tax purposes (the blacklist). 

It is a result of, among other things, the EU’s work to prevent the use of tax havens and to combat tax evasion and tax avoidance. As part of these efforts, the EU – since 2017 – has maintained and published a so-called blacklist of non-cooperative tax jurisdictions that do not live up to international tax standards and good tax practices. 

As of 6 October 2020 the following tax jurisdictions are on the EU blacklist:

• American Samoa
• Anguilla
• Bangladesh
• United States Virgin Islands
• Fiji
• Guam
• Palau
• Panama
• Samoa
• Trinidad and Tobago
• Seychelles
• Vanuatu.

In December 2019, the Council of the European Union decided all Member States must apply, effective from 2021, legislative defensive measure against countries on the blacklist. The objective is that countries on the list should have additional incentive to change their national laws and practices so as to eventually be removed from the list. 

Sanctions proposed against blacklist countries

The Bill proposes two sets of defensive measures against the countries on the blacklist. 

No deductibility

Firstly, the Danish Ministry of Taxation is proposing that persons and enterprises, etc., should not generally be able to deduct a payments to related parties resident or registered in blacklisted countries. Likewise, such payments should not be included in the calculation of taxable income. 

The rules are based on the notion of ‘beneficial owner’, requiring the paying company to assess whether the recipient of the payment is the beneficial owner of it. This as a way to prevent the establishment of conduit companies. Thus, it will not be possible to achieve deductibility, etc., on payments to a recipient in a country which is not on the list, if the intended ultimate recipient resides in a blacklisted country.

It can be seen from the preparatory works behind the Bill that the payments that will be comprised are any remuneration paid in connection with acquiring title to or right of use in an asset, payment or right, including consideration for monetary loans or credits. 

The proposed rule thus covers any form of consideration paid as a purchase sum to acquire an asset, whatever the type of that asset. It will comprise also any consideration – rent, leasing charge or royalty – paid in return for the right to dispose of real property, chattels, or intangible assets.

Stricter taxation of dividends

Secondly, the Danish Ministry of Taxation is proposing stricter taxation of dividends. In this way, persons and enterprises resident in blacklisted countries, if they receive dividend on shares in a Danish company, will generally be subject to a 44 per cent final gross tax on such dividends. The company paying the dividend will be obliged to withhold the tax.

It is a condition that the person or enterprise is the beneficial owner of the dividend. 

It is proposed that the new rules will take effect 1 July 2021.

Double taxation treaty with Trinidad and Tobago

Denmark has a double taxation treaty with the blacklisted country Trinidad and Tobago. Because said treaty prevents the most recently proposed measures from being enforced in the country, the Bill does not comprise payments and dividends to recipients in Trinidad and Tobago.

In the preparatory works behind the Bill, it says the Ministry is contemplating proposing a bill allowing the Minister of Taxation to terminate the double taxation treaty with Trinidad and Tobago. Any such termination, however, cannot take effect sooner than 1 January 2022. 

At Kromann Reumert we are monitoring the situation closely and are available if you require advice or have any questions in relation to the Bill.