Strategizing Multinational Tax Risks

Following up on its intent to introduce a “Super GAAR” (refer to 03 Jan 2015 post), a draft bill has been issued by the Danish tax authorities to achieve this objective.  The new anti abuse provisions would take effect 01 May 2015 with no grandfathering exception.

The draft bill would contain two GAAR provisions:

• EU tax directive following the EU Parent-Subsidiary Directive (PSD) adopted by the European Council on 27 January.
• Domestic provision, mirroring language in the PSD, that would apply to all EU Directives, including the Interest and Royalty Directive.

The provisions would apply to existing and new Danish tax treaties based on the premise that treaty benefits are not available in arrangements that include abuse of treaty provisons.

The inherently subjective nature of the GAAR proposals, including the override of EU Directives, will likely be challenged by taxpayers and possibly the courts.  In the interim, Danish transactions should be exercised with an element of care re: the potential application of GAAR that would reverse the tax advantage obtained.

The final OECD BEPS guidelines are yet to be issued, thus inconsistencies may arise between the unilateral legislation speeding into Danish tax law and OECD’s final guidance that aims at worldwide consistency.