4.2.3.3 T Danmark

In the Danish beneficial ownership cases,1 as in the Deister Holding and Juhler Holding case, the CJEU ruled on the answer to the question of whether benefits that a group can claim under the provisions of secondary EU law can be upheld in possible abuse situations.2 The T Danmark case revolves around five investment funds. These investment funds are all located in countries that have not agreed a tax treaty with Denmark. Together, the funds hold a stake of more than 50% in T Danmark through a company established in Luxembourg. The Danish company T Danmark pays dividends to the Luxembourg entity. At the request of the Danish authorities, the Luxembourg tax authorities stated that the company in question is subject to taxation and is also the beneficial owner of the dividends received. The High Court of Eastern Denmark doubted whether the dividend payment should be eligible for the application of the withholding tax exemption. One problem in this context was the fact that it was not clear whether the Luxembourg company could freely dispose of the dividends.

Denmark did not explicitly transpose the anti-abuse provision from the PSD into national legislation. In their national legislation a nation-wide general anti-abuse principle applied. Nevertheless, the CJEU considered that the withholding tax exemption should be refused under the general principle of EU law to prevent fraud or abuse. That principle requires Member States to refuse to apply the benefit of the provisions of EU law where they are relied upon not with a view to achieving the objectives of those provisions but with the aim of benefiting from an advantage in EU law, whereas the conditions for benefitting from that advantage are only formally fulfilled.3 In the T Danmark case, the CJEU argues that the fact that the transfer of an 'empty' Luxembourg company to escape the dividend tax claim that would result from a direct payment to the foreign investment funds (or its participants) is a form of abuse which should not result in application of the withholding tax exemption.

The CJEU seems to assess in its judgment at an individual level whether the party receiving the dividend can be regarded as a conduit company, irrespective of its function in the group as such. However, the judgment clearly indicates that examination of a set of facts is needed to establish whether an abusive practice is present.4 This implies a form of a group approach. Moreover, according to the CJEU it remains possible that the situation is unconnected with any abuse of rights if the dividend would have been exempt had it been paid directly to the shareholder of the Luxembourgish company. If that is the case, the group cannot be reproached for having chosen a structure with an intermediary holding company rather than a direct payment of the dividends to that company.5 This prescribes a sort of ‘look through’ approach, which again takes into account the group structure.