Beneficial ownership case

Case no. BS-63473-2023-HJR
Judgment delivered on 16 September 2024

Cook Denmark International Holdings ApS
vs.
The Danish Ministry of Taxation

Assessment under EU Directive and double taxation agreements of interest payments to foreign company

The tax authorities had decided that Cook Denmark International Holdings ApS was liable to withhold tax on interest paid or added in 2005, 2006 and 2007 in respect of two debt instruments of originally EUR 900 million issued to the company’s parent company Cook Sweden Finance AB in connection with the restructuring of the Cook Group around the turn of 2004/2005.

The case before the Supreme Court concerned whether the tax on the interest should be waived or reduced under the Interest and Royalties Directive or waived under the double taxation agreements with the Nordic countries and the USA, respectively.

According to the Interest and Royalties Directive, interest payments arising in a Member State are exempt from any taxes imposed on those payments in that State, provided that the beneficial owner of the interest is a company of another Member State. The Supreme Court stated, among other things, that the EU Court of Justice has held that the concept of ‘beneficial owner’ excludes conduit companies and must be understood as having a meaning that enables tax evasion and avoidance to be prevented. The EU Court of Justice has set up a number of criteria for the determination of whether company is a conduit company.

The Danish double taxation agreements with the Nordic countries and with the USA contain provisions to the effect that no tax can be levied on interest in Denmark if the beneficial owner of the interest is domiciled in another contracting state.

Based on a specific assessment, the Supreme Court found that Cook Sweden Finance was not the beneficial owner of the interest at issue in this case, and that Cook Sweden Finance’s parent company Cook Sweden Holding was also not the beneficial owner of the interest, as both companies were conduit companies.

Cook Denmark International Holdings had submitted that if Cook Sweden Finance was not the beneficial owner of the interest, the American company, Cook Group, must be regarded as being the beneficial owner, and that the tax should thus be waived according to the double taxation agreement between Denmark and the USA. Cook Group owned Cook Sweden Holding via a company in the Cayman Islands and had received a payment of EUR 140 million from that company in December 2005 shortly after Cook Denmark International Holdings had paid EUR 58.9 million in interest to Cook Sweden Finance.

The Supreme Court stated that the interest in the case had been paid or added to debt instruments of originally EUR 900 million. According to the information provided, Cook Group had not furnished any loans in connection with the restructuring or subsequently acquired the debt instruments. The payment received by Cook Group from its subsidiary in the Cayman Islands was not an interest payment, but should rather be regarded as a dividend payment considering the ownership.

Accordingly, the Supreme Court held that Cook Group could not be the beneficial owner of interest as provided in the double taxation agreement between Denmark and the USA. For that reason alone, the tax on the interest should not be waived under the double taxation agreement.

The High Court had reached the same conclusion.