Taxation of interest in beneficial ownership cases

Case no. 116/2021 and case no. 117/2021
Judgment delivered on 4 May 2023

Takeda A/S in voluntary liquidation
vs.
The Danish Ministry of Taxation

and

NTC Parent S.à.r.l
vs.
The Danish Ministry of Taxation

The main issue in these cases was whether Takeda A/S in voluntary liquidation and NTC Parent S.à.r.l. were required to withhold tax on interest on intercompany loans granted by foreign group companies. The cases were to be decided under Danish tax law, the EU Interest and Royalties Directive and double taxation agreements between the Nordic countries and Luxembourg.

In its judgment of 9 January 2023, which dealt with dividends distributed to foreign parent companies, the Supreme Court gave its opinion on when a foreign parent company is the beneficial owner under double taxation agreements with, among others, Luxembourg, and when an abuse of rights has been committed.

In the present cases concerning tax on interest, the Supreme Court referred in general to its judgment of January 2023 and went on to make a specific assessment of the two groups’ structure and loans.

The Supreme Court stated that both groups had undergone restructuring, including the addition of companies in Sweden and Luxembourg, and that this restructuring had to be regarded as a comprehensive and pre-arranged tax arrangement.

The Supreme Court held that the companies added had to be regarded as conduit companies that were not protected by the Interest and Royalties Directive or by the double taxation agreements.

It could not be established based on the information produced by the parties where the interest had gone after having passed through the conduit companies, and thus who was the legal owner of the interest.

Against that background, the Supreme Court ruled that the tax arrangements amounted to abuse. Takeda in voluntary liquidation and NTC Parent should therefore had withheld tax on interest of approx. DKK 369 million and approx. DKK 817 million, respectively.

The High Court had reached the same conclusion.