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Supreme Court of Denmark

Rightful income recipient to be determined according to Danish law 

Case no. 166/2017

Judgment delivered on 19 June 2018

NHRN Holding A/S
Stichting Niels Reimar Nielsen
The Danish Ministry of Taxation

A Dutch foundation could not be recognised as an independent taxpayer, and the founder was liable to pay tax on the dividend

The case concerned whether a holding company had an obligation to withhold dividend tax of an amount distributed in 2007. The issue to be determined was whether the dividend should be regarded, for tax purposes, as having been distributed to a Dutch foundation or to the foundation’s founder.

The Supreme Court found that question of who was the rightful income recipient should be determined according to Danish law. The foundation did not meet the requirement for an independent management, as its board consisted only of the founder and his parents. For that reason, the Supreme Court held that the founder of the foundation was to be regarded as the rightful income recipient for tax purposes. That meant that he, and not the Dutch foundation, was liable to pay tax on the dividend.

As the requirement for an independent management applied regardless of whether the foundation was set up in Denmark or abroad, and since it was not more difficult for a foreign foundation than for a Danish one to meet this requirement, the Supreme Court found that this condition did not amount to a difference in treatment between objectively comparable situations. The decision not to recognise the foundation as an independent taxpayer was thus not in contravention of EU law.

The holding company was liable to the Danish state for its failure to withhold dividend tax, as it had not been established that the company had not acted negligently when distributing dividend without withholding tax.

The High Court had reached the same conclusion.

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