Fund Taxation Alert 2019-04

Fund Taxation Alert 2019-04

Fund Taxation Alert 2019-04



Danish withholding tax on foreign investment funds - High Court decision on the Fidelity case (C 480-16) issued

On June 21, 2018, the Court of Justice of the European Union (CJEU) rendered its decision in the Fidelity Funds case (C-480/16), concerning the compatibility with EU law of the Danish withholding tax (WHT) on dividends distributed to non-resident investment funds.

The CJEU concluded that the Danish legislation is contrary to the free movement of capital.

Following the CJEU decision, the Danish High Court issued a decision on the actual facts of the Fidelity case.


The case concerns Fidelity Funds and NN (L) SICAV (the Funds), two investment funds whose registered offices are in the UK and Luxembourg, respectively.

Danish investment funds that have invested in Denmark are not subject to Danish WHT, provided they fulfill requirements of article 16C of the Danish tax law (which requires, inter alia, that the funds redistribute their income to their shareholders or submit the calculation of a notional distribution which is subject to tax).

On the other hand, foreign UCITS funds were liable to WHT levied on dividends from Danish companies, even if they fulfilled the requirements of article 16C.

The Funds thus argued that this different treatment was contrary to the free movement of capital, and requested a refund of the tax levied.

The Danish High Court responsible for looking into this case referred it to the CJEU for a preliminary ruling.

The CJEU rendered its decision on June 21, 2018.
It concluded that the dividend WHT that Denmark imposes on foreign investment institutions, based on their country of residence, constitutes a restriction to the free movement of capital.

The CJEU ruling could potentially be interpreted as leaving it up to the Danish High Court to determine whether only foreign investment funds that have complied with the conditions applicable for IMB's would be entitled to a refund/exemption from Danish WHT.

Furthermore, the Danish High Court needed to make a decision in the case at hand.

The High Court decision

In short, the Danish High Court asked itself the following question:
Should foreign funds have the same tax benefits as a Danish fund complying with the IMB requirements, irrespective of the fact that they did not meet these requirements and did not try to fulfill the purpose of the Danish rules in any other way?

The IMB conditions include making a Danish active election of IMB status and submitting annual IMB assessments based on Danish tax rules and for Danish funds also applying a tax on distributions.

The Court answered this question in the negative.

The Court stated that the CJEU did not analyze whether the IMB requirements were contrary to EU law and that as the case was presented, the Court did not have to respond to this or to whether a foreign fund should have been allowed the possibility to provide tax information to the Danish tax authorities in a way alternative to the 'IMB' requirements.

KPMG Luxembourg comments
It should be noted that the claimant asked for five questions to be referred to the CJEU in order to obtain clarification as to whether all (or at least which of) the features of an IMB fund should be fulfilled to consider a foreign fund as being comparable to a Danish fund.
The Danish High Court only accepted to ask one of the questions and reject the other four.

This probably explains why the CJEU has not provided a comprehensive answer to the situation.
It is therefore likely that further questions may be referred to the CJEU in this case, which has been appealed to the Supreme Court, or in similar cases before the issue is resolved.

In our view, the case is not closed for foreign (comparable) funds having suffered Danish WHT on Danish dividends.
While the chance of success overall should not have increased, the case at hand does open up for the possibility that even though a foreign fund has not complied with Danish IMB requirements (which very few foreign funds have), it could be considered to refer the claims to the tax authorities and agree on an alternative reporting that could potentially lead to a (partial) refund or that the CJEU is presented with further questions and it can be concluded that the IMB requirements are in fact contrary to EU law.

Next steps

The Danish High Court ruling has been appealed before the Danish Supreme Court.

At the Supreme Court level, additional questions could potentially be referred to the CJEU.

Furthermore, other funds that have received rejections could choose to appeal their rejection to court with another procedural approach implying that the case could have another outcome than the Fidelity case. Also, in such a case, new questions could be referred to the CJEU.
For instance, referring to the CJEU decision in the Van der Weegen – Pot case (580/11), it could be invoked that in practice the IMB rules are very difficult to comply with for a foreign fund and, therefore, the Danish rule is contrary to EU law.

Regarding the future, we are still awaiting new legislation taking into account the CJEU conclusion, i.e. amending the current Danish WHT rules, to align tax treatment of Danish and foreign funds, e.g. by allowing foreign funds to benefit from a Danish WHT exemption.

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