date | theme

26. October 2020 | Overview of the OECD Model Agreement – OECD-MA as the basis for DTA

02. January 2021 | Double Taxation Agreement Denmark (this contribution)

08. January 2021 | Double Taxation and Double Taxation Agreement

08. January 2021 | Overview of the most important articles of the OECD-MA

08. January 2021 | Double taxation without DTA: Business relations with countries without DTA

Double taxation with other states is avoided by double taxation agreements (DTA). In this article, we take up the DTA Denmark to look at and record the most important regulations and differences to the OECD Model Agreement (OECD-MA). For example, the integration of rules to avoid double taxation in the collection of inheritance tax is such a difference. Because unlike the DBA Denmark, such questions are regulated in separate DBAs. However, the mere fact that a regulation was established between Denmark and Germany in the field of inheritance tax is remarkable. After all, such agreements are rather the exception.

The double taxation agreement with Denmark was concluded in 1996. In fact, this DBA is even a little special, as it covers not only taxes on income and wealth, but also inheritance and gift taxes. In many other cases, own DBAs are concluded for the latter tax matters.

2. The Articles in detail

First of all, it should be mentioned that, as in other DTAs, Articles 1 to 5 DTA govern the basic provisions and terms of Denmark. These are oriented to the OECD-MA and deviate from the norm only in rare individual cases. Unless otherwise specified, one is guided by the regulations of the OECD-MA.

Article 10: Dividends

Similar to the OECD-MA, in the DTA Denmark, 15% withholding tax on dividends is to be withheld. However, the withholding tax is reduced to 5% if the company holds at least 10% of the distribution company. In addition, a permanent establishment reservation must also be taken into account for the withholding tax. If the receiving company has a permanent establishment in the State of the distributing company and the shareholding is attributable to that permanent establishment, no withholding tax may be withheld under the DTA Denmark.

Article 13 – Capital gains

Furthermore, Article 13 DTA Denmark deals with the sale of assets. If, for example, land or real estate is sold, they are taxed in the local state according to the locality principle. In the DTA Denmark, however, Article 13 is widening since it may also cover the sale of shares and other holdings. This applies if the assets of the company in which one participates consist mainly of immovable assets.

In addition, the regulations for employees are identical to the provisions of the OECD-MA. Therefore, this means that there are no special, different regulations for border commuters and commuters, as there are, for example, in the DTA Austria.

2.4. Method for avoiding double taxation

Here, too, double taxation is avoided by the exemption method. One state receives the full taxation right, while the other state waives its taxation right. In addition, the withholding method shall also be applied if the withholding State has withheld tax.

3rd Inheritance Tax & DBA Denmark

Furthermore, the DTA Denmark contains a quite extraordinary feature. Because Articles 25 to 28 DTA Denmark regulate double taxation in inheritance and gift matters. This relates in particular to immovable and movable property which becomes part of an estate.

For this purpose, immovable property, such as land and real estate, is taxed in the local state. This is related to the basic location principle. But it can be done differently. In contrast, movable property is taxed in the local State only if it is linked to that State by a permanent establishment or other permanent establishment.

The DTA Denmark is an exception both in content and in the way these bilateral rules are codified. Because the inclusion of these regulations in the regular DBA is anything but everyday. The very fact that agreement is being reached in this area is remarkable. After all, only a few countries have so far agreed on such a bilateral arrangement. But if you make such regulations, then usually in separate DBAs. Here, however, the rules for avoiding double taxation have been made part of the general DTA.