Following the Santander judgment by the European Court of Justice and the EU Commission's letter of notice to the Danish Government earlier this year, foreign investment funds having suffered Danish withholding tax on dividends should file protective claims for refunds with the Danish tax authority.

EU Commission notice

In April 2012, the EU Commission issued a formal letter of notice to the Danish government concerning Danish withholding tax on outbound dividends to foreign investment funds. In the notice, the EU Commission challenges the Danish tax treatment of dividends paid by Danish companies to investment funds on the grounds that only investment funds that are tax residents of Denmark may benefit from a withholding tax exemption.

Under the present rules, Danish companies can distribute dividends to "distributing" Danish investment funds free from withholding tax, while the exemption is not available to foreign investment funds. To qualify as a distributing fund, several requirements must be met, including the fund issuing only one class of shares and the preparation of complex calculations of the fund's income. In theory, a foreign fund may meet the requirements. However, due to the administrative burdens involved with these calculations in reality only a very limited number of foreign funds have chosen to fulfil these requirements, and, accordingly, there is in practice a restriction on the marketing of foreign funds to Danish resident investors. Furthermore, even if a foreign fund chooses to comply with the requirements necessary to qualify as a distributing fund for Danish tax purposes, it is not clear whether the foreign fund would be able to benefit from the exemption from withholding tax on dividends.

In its reply to the EU Commission, the Danish Ministry of Taxation acknowledges that Danish and non-Danish investment funds in some respects are subject to a different tax treatment in relation to taxation of dividends and that this difference may constitute a restriction on the free movement of capital. However, in its reply, the Ministry argues that this restriction is justified under the need to safeguard the coherence of the tax system and the balanced allocation of the power to tax between member states.


In May 2012, the European Court of Justice (“ECJ”) handed down its judgment in the Santander case (C-338/11). The ECJ ruled that certain non-French mutual investment funds were entitled to a full refund of 25% French dividend tax withheld on French source portfolio dividends received by the funds, and the ruling could have a major impact on the levying of withholding tax on dividends by EU Member States.

The Danish rules

The Danish rules on withholding tax on dividends paid to investment funds are not fully comparable to the French rules considered in the Santander case, and it is therefore likely that the Danish Ministry of Taxation will continue to argue that the Danish rules are justified.

However, foreign investment funds that have suffered Danish withholding tax on dividends should file protective claims for refunds with the Danish authorities to suspend the applicable statute of limitation. Kromann Reumert can assist with the filing of such protective claims.

Change of law

On a separate note, it should be mentioned that effective as of 1 January 2013, the Danish requirements for qualifying as a distributing fund will change. Following the changes, distributing investment funds will be allowed to issue several classes of shares and the requirement to prepare complex calculations of the fund's income will to some extent be simplified.