New defensive measures against EU blacklist countries

5.20.2021

Two Bills on tax sanctions against EU blacklist countries were recently passed by the Danish Parliament. One Bill implies both restrictions on deductibility for certain payments and stricter dividend taxation. The other Bill authorises the Danish Government to terminate the double-taxation treaty with Trinidad and Tobago.
Recently, the Danish Parliament passed two Bills on tax sanctions: one which seeks to implement defensive measures against countries on the EU’s list of non-cooperative jurisdictions for tax purposes (the blacklist); and one which authorises the Danish Government to terminate the double-taxation treaty with Trinidad and Tobago.

Interested in the background to the Bills: Defensive measures underway against EU blacklist countries

New sanctions

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

No deductibility

Firstly, persons and enterprises, etc., will not generally be allowed to deduct 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 is 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 covered by the Bill include any consideration paid in connection with the acquisition of a title to or a right of use in an asset, payment or right, including consideration for monetary loans or credits. 

The rule thus covers any form of consideration paid as a purchase sum to acquire an asset, whatever the type of that asset. It also covers 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, stricter taxation of dividends. In this way, persons and enterprises resident in blacklisted countries will generally, if they receive dividends on shares in a Danish company, be subject to a 44 per cent final gross tax on such dividends. The company paying the dividends will be obliged to withhold the tax. It is a condition that the person or enterprise is the beneficial owner of the dividends. 

The new rules will take effect 1 July 2021.

Authorisation to terminate the 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 approved measures from being enforced in the country, the Bill does not cover payments and dividends to recipients in Trinidad and Tobago.

On 20 April 2021, the Danish Parliament authorised the Danish Government to terminate, on behalf of Denmark, the double-taxation treaty with Trinidad and Tobago. Any such termination, however, cannot take effect sooner than 1 January 2022.