This article was first published on Tax@Hand, and is reproduced on this blog with the authorization of its authors.
On 4 February 2022 France and Denmark signed a new tax treaty, more than 13 years after the government of Denmark terminated their previous tax treaty on 10 June 2008, which ceased to apply as from 1 January 2009.
The new treaty generally follows the 2017 OECD model treaty and is inspired by the MLI (Multilateral Convention to Implement Tax Treaty Related Measures to Prevent Base Erosion and Profit Shifting).
As the treaty was signed after France and Denmark each deposited their MLI ratification instrument, it will not be considered covered by the MLI. However, it includes numerous key provisions of the MLI:
- The MLI general anti-abuse rule (the “principal purpose test” in article 7 of the MLI) is reproduced identically at article 29 of the new tax treaty;
- With regard to permanent establishments (PEs), the treaty introduces a new “dependent agent” definition to cover situations in which an agent habitually plays the principal role leading to the conclusion of contracts that are then routinely concluded without material modification by the enterprise. It also includes provisions addressing the artificial avoidance of PE status through “commissionaire arrangements;” and
- The treaty also includes specific provisions regarding transparent entities and dual residency, inspired by articles 3 and 4 of the MLI.
The maximum rates of withholding tax provided by the treaty are:
- 15% on dividends, reduced to 0% if the beneficial owner is a company holding directly at least 10% of the capital of the company paying the dividends throughout a 365-day period. Specific provisions apply in the event the dividends are paid from income or gains derived from real estate by an investment vehicle established either in France or in Denmark; and
- 0% on interest and royalties (right to tax exclusively attributed to the country of residence of the beneficial owner).
The tax treaty must now be approved by the French and Danish parliaments before being ratified by each country. It will enter into force on the day following the reception by each contracting state of the other state’s ratification instruments.
It will generally apply as from 1 January of the year following the entry into force.
