B294201X - PEN/MRO

ISSUED BY THE EASTERN HIGH COURT

Judgement

Dismissed on 25 November 2021 by the 13th Chamber of the Østre Landsret (District Court) (Judges Anne Birgitte Fisker, Louise Saul and Michael de Thurah).

13th Chamber No B-2942-12:

Takeda A/S in voluntary liquidation (formerly Nycomed A/S) (Lasse Esbjerg Christensen, lawyer,

Søren Lehmann Nielsen and Mathias Kjærsgaard Larsen) v

Ministry of Taxation

(Søren Horsbøl Jensen and Robert Andersen, lawyers)

and

13th Section No B-171-13:

NTC Parent S.a.r.l.

(lawyer Arne Møllin Ottosen) v

Ministry of Taxation

(Søren Horsbøl Jensen and Robert Andersen, lawyers)

TABLE OF CONTENTS

1. Form of order sought and background to the cases 4

B-2942-12 Takeda A/S in voluntary liquidation v Ministry of Taxation 4

B-171-13 NTC Parent S.a.r.l. v Ministry of Taxation 5

II. Background 6

B-2942-12 Takeda A/S in voluntary liquidation (Takeda A/S) v. Ministry of Taxation 6

SKAT's decision of 13 December 2010 6

Additional information on the group and the loans 32

B-171-13 NTC Parent S.a.r.l. v Ministry of Taxation 39

SKAT decision of 18 March 2011 39

Additional information on the group and the loans 77

III. Answers to questions referred by the Court of Justice of the European Union 84

IV. Legal basis 97

Corporation Tax Act 97

Legislative Decree No 1125 of 21 November 2005 on the Law on Income Taxation of Joint Stock Companies, etc. (Corporation Tax Act) 98

Corporation Tax Act § 3 102

Tax Control Act § 3 B 102

Council Directive 2003/49/EC of 3 June 2003 on a common system of taxation applicable to interest and royalty payments made between associated companies of different Member States (Interest Directive)

/Directive) 1079

Double taxation conventions 109

The Nordic double taxation convention 110

Convention with Luxembourg 110

Correspondence between Denmark and Luxembourg concerning the double taxation convention 111

OECD Model Double Taxation Convention with commentary 113

Directive 85/611/EEC on UCITS 121

Directive 2009/65/EC on UCITS 122

Relevant Luxembourg legislation on the taxation of investments 125

Law of 31 July 1929 125

Law of 30 March 1988 and Law of 20 December 2002 (SICAF and SICAV) 127

Law of 22 June 2004 on Risk Capital Investment Company (SICAR) 130

Law of 11 May 2005 (SPF) 131

Law on the taxation of capital gains § 19 133

Clarification of administrative practice 135

Relevant legislation implemented after Skat's decisions 135

Section 3 of the Ligningswet 135

Council Directive 2016/1164/EU of 12 July 2016 concerning rules for combating tax avoidance methods that directly affect the functioning of the internal market 136

Act No 327 of 30 March 2019 on the application of the multilateral convention for the implementation of measures in double taxation agreements to prevent tax avoidance and profit shifting 137

V. Pleas in law 138

B-2942-13 Takeda A/S in voluntary liquidation v Ministry of Taxation 138

B-171-13 NTC Parent S.a.r.l. v Ministry of Taxation 249

VI. Reasons and findings of the Regional Court 293

B-2942-12 Takeda A/S in voluntary liquidation v Ministry of Taxation 294

Section 2(1)(d) of the Corporation Tax Act 294

Interest/Royalty Directive 294

The Nordic Double Taxation Convention 297

Interest accruals in 2007, 2008 and 2009 299

Double taxation agreement with Luxembourg 301

Preliminary conclusion 303

§ Article 2(1)(d), last sentence 303

Administrative practice 304

Article 69(1) of the withholding tax law 305

Conclusion 306

Costs of proceedings 306

B-171-13 NTC Parent S.a.r.l. v Ministry of Taxation 307

Section 2(1)(d) of the Corporation Tax Act and the amendment of the Act on 1 May 2006 307

Application of the third sentence of Section 2(1)(d) of the Corporation Tax Act 308

Interest on Nordic Telephone Company Investment ApS's loans in 2006, 2007 and 2008

....................................................................................................................................308

The alternative and further alternative pleas 311

The most subsidiary claim - Section 69(1) of the Withholding Tax Act 311

Conclusion... 312

Costs of the proceedings 312

1. Pleas in law and background to the cases

B-2942-12 Takeda A/S in voluntary liquidation v Ministry of Taxation

On 13 December 2010, SKAT ruled that Nycomed A/S was liable to withholding tax under Section 65 D of the Withholding Tax Act, cf. Section 2(1)(d) of the Corporation Tax Act, on interest accrued during the period 2007-2009 on a loan granted to the company by its parent company, Nycomed Sweden Holding 2 AB, totalling DKK 392 161 097.

SKAT has subsequently reduced the amount to DKK 369 057 895.

In 2011, Takeda Pharmaceutical Company Limited acquired the shares of Nycomed A/S, which subsequently changed its name to Takeda A/S.

SKAT's decision was appealed to the National Tax Court, but before the National Tax Court ruled on the case, the case was brought before the Court of Roskilde on 9 July 2012 pursuant to Section 48(2) of the Tax Administration Act. By order of 24 August 2012, the Tribunal in Roskilde referred the case to the Østre Landsret (Supreme Regional Court) pursuant to Article 226(1) of the Code of Judicial Procedure.

The applicant, Takeda A/S in voluntary liquidation, claims that the Court should

Principally: The Ministry of Taxation should recognise that Takeda A/S in voluntary liquidation is not liable to withholding tax on interest of DKK 115 516 013, DKK 138 380 325 and DKK 115 161 557 respectively, in total DKK 369 057 895, corresponding to 25 % of the interest attributed in the years 2007, 2008 and 2009 on the loan from Nycomed Sweden Holding 2 AB at issue in the case, and that Takeda A/S in voluntary liquidation is not liable for payment of the amounts not withheld.

In the alternative (concurrent claims)

(A) The Ministry of Taxation should recognise that the withholding tax claims against Takeda A/S under voluntary liquidation for the years 2007, 2008 and 2009 are reduced by DKK 1,615,932, DKK 1,935,776 and DKK 1,610,973 respectively.

(B) The case is otherwise remitted for reconsideration by the Tax Agency with a view to reducing the withholding tax claim to DKK 0, to the extent that it is established that the direct or indirect investors in Nycomed S.C.A., SICAR at the times of the interest imputations on 27 December 2007, 27 December 2008 and 27 December 2009 respectively were (1) the 'beneficial owners' of the interest in question under a double taxation convention between the State of domicile and Denmark, or (2) natural persons.

Takeda A/S, in voluntary liquidation, submits an application for dismissal of the Ministry of Taxation's claim for rejection of alternative claim B.

The defendant, the Ministry of Taxes, claims that Takeda A/S should be dismissed as the defendant in the main action and in the alternative action (A).

The Ministry of Taxation has made a principal application for dismissal, or in the alternative for acquittal, of the company's alternative claim B).

B-171-13 NTC Parent S.a.r.l. v Ministry of Taxation

On 18 March 2011, SKAT ruled that Nordic Telephone Company Investment ApS was obliged to withhold tax from the interest paid/accrued on the shareholder loan between Nordic Telephone Company Investment ApS and the company Angel Lux Common S.a.r.l. for the period 1 May 2006 to 10 July 2008 in accordance with Section 65 D of the Withholding Tax Act, cf. Section 2(1)(d) of the Corporation Tax Act, for a total of DKK 925 764 961. By decision of 5 October 2015, SKAT reduced the amount to DKK 817,238,912.

Nordic Telephone Company Investment ApS merged in 2009 with Nordic Telephone Company Administration ApS as the continuing company. In 2010, Nordic Telephone Company Administration ApS was dissolved by a tax-free cross-border merger with Angel Lux Common S.a.r.l., which subsequently changed its name to NTC S.A. and was subsequently liquidated with the transfer of, inter alia, the claim in this case to NTC Parent S.a.r.l. NTC Parent S.a.r.l. has paid the interest tax in question to SKAT. The action was brought by NTC Parent S.a.r.l.

SKAT's decision was appealed to the National Tax Court, but before the National Tax Court ruled on the case, the case was brought before the Copenhagen City Court on 17 September 2012, pursuant to Section 48(2) of the Danish Tax Administration Act. By order of 9 January 2013, the Copenhagen District Court referred the case to the Østre Landsret (Supreme Regional Court) for consideration pursuant to Section 226(1) of the Code of Judicial Procedure.

The applicant, NTC Parent S.a.r.l., makes the following final submissions:

Principally: The Ministry of Taxation should recognise that there is no Danish limited tax liability for interest on loans between Nordic Telephone Company Investment ApS as debtor and Angel Lux Common S.a.r.l. as creditor in the income years 2006-2008.

In the alternative: The Ministry of Taxation shall recognise that the withholding tax claim shall be reduced by DKK 574,865,866 or such other amount as the court may determine.

In the further alternative: Refer the case back to the Tax Agency for determination of the amounts to be reduced.

In the further alternative: The Tax Administration shall recognise that Nordic Telephone Company Investment ApS is not liable for withholding tax on interest on the PEC loans, pursuant to Section 69 of the Withholding Tax Act.

The Ministry of Taxation claims that the Court should dismiss the action.

II. Summary of the case

B-2942-12 Takeda A/S in voluntary liquidation (Takeda A/S) v Ministry of Taxation

SKAT's decision of 13 December 2010

On 13 December 2010, SKAT ruled that Nycomed A/S should have withheld withholding tax in connection with the interest accruals made in the years 2007-2009 in favour of its parent company, Nycomed Sweden Holding 2 AB, and that Nycomed A/S should be held liable for the tax. The interest accruals for the period 2007-2009 amounted to DKK 462 064 052, DKK 553 521 299 and DKK 460 646 228 respectively. SKAT therefore levied interest tax pursuant to Section 65 D of the Withholding Tax Act, cf. (30 %), DKK 138 380 325 (25 %) and DKK 115,161,557. (25%), totalling DKK 392,161,097. The Ministry of Taxation has subsequently acknowledged that the withholding tax claim for 2007 should be reduced to DKK 115,516,013. (25%), so that the total withholding tax claim was DKK 369,057,895.

SKAT's decision of 13 December 2010 states, inter alia: "Description of the company [Nycomed A/S]

The company was founded with the purpose of acquiring the Nycomed group in connection with a capital fund takeover thereof. The sole activity of the company is to own the shares of Nyco Holdings ApS, CVR No 26812275, which was at that time the ultimate Danish holding company of the group.

The group is a European marketing-driven pharmaceutical company. It purchases, develops, manufactures and sells a wide range of prescription ('Rx') and other 'OCT' medicinal and 'comsumer health' products.

In 1999, the group was acquired by a private equity fund established by Nordic Capital V Limited (Nordic Capital). In 2002, a new group of private equity funds and an investment company acquired the group from Nordic Capital. These are the investment company Carillion and private equity funds set up by CSFB Private Equity, The Blackstone Group International Limited (Blackstone) and NIB Capital Private Equity. Such advisers to the private equity funds are also called sponsors. In 2005, Nordic Capital bought back 46,8 % of the group from its previous owners.

This was done through the formation of Nycomed A/S, which then acquired the then ultimate Danish parent company of the Group - Nyco Holding A/S, CVR No 26812275.

At the end of 2006, the Group acquired the German pharmaceutical group Altana Pharma. This was done by Nycomed Danmark ApS founding the German holding company Nycomed Germany Holding GmbH, which subsequently acquired the then ultimate German parent company of the Group - Altana Pharma AG.

Numerical breakdown

The following interest tax is to be withheld:

Date of addition Amount EUR Rate Amount in DKK Interest tax in pct. Interest tax in DKK

27-12-2007 61.965.461 745,68 462.064.052 30 138.619.216

27-12-2008 74.258.291 745,40 553.521.299 25 138.380.325

27-12-2009 61.887.366 744,33 460.646.228 25 115.161.557

Total 198.111.118 1.476.231.579 392.161.097

Withholding tax on interest payments

1. Facts of the case

1.1. Group and ownership structure

Nycomed A/S is fully owned by Nycomed Sweden Holding 2 AB. 96,85 % of Nycomed Sweden Holding 2 AB is owned by Nycomed Sweden Holding 1 AB. The shares are owned by the group's management. Sweden Holding 1 AB is fully owned by Nycomed S.C.A., SICAR, which is ultimately owned by the investors behind the private equity funds. Nycomed Sweden Holding 2 AB and Nycomed Sweden Holding 1 AB are domiciled in Sweden, while Nycomed S.C.A., SICAR is domiciled in Luxembourg.

Consolidated financial statements as at 31.12.2007 are attached as Annex 1. The exact structure of the underlying part of the group, which consequently changes on a continuous basis, is not so crucial for this case, therefore only the overview as of 31.12.2007 is attached.

SKAT has enquired about the ownership of Nycomed S.C.A., SICAR. In a letter dated 19 November 2010, Anders Bjørn and Charlotte Götzsche from KPMG have replied on behalf of the company that the company does not currently have detailed information on the ownership structure and therefore information on this cannot be submitted.

1.2. Loan between Nycomed A/S and Nycomed Sweden Holding 2 AB

On 27 December 2006, Nycomed A/S borrowed EUR 501 million from Nycomed Sweden Holding 2 AB. According to clause 3.1 of the loan agreement, the debt bears interest once a year at EURIBOR + 8,0 percentage points. The loan is primarily used to refinance the existing PIK note loan taken out in 2005 in connection with the acquisition of the Nycomed Group by Nycomed A/S.

Unless otherwise agreed between the borrower and the lender, the interest shall be credited to the principal as defined in clause 3.2 of the Agreement.

The loan plus the interest attributed under paragraph 3.2 shall be repaid in full 10 years after the date of the Agreement, i.e. 27 December 2016.

However, the borrower may redeem the loan in whole or in part at any time before that date, in accordance with point 4.2 of the Agreement.

If interest tax is to be withheld, the borrower must increase his payment so that the lender receives the same amount as if no interest tax had been withheld.

The interest charges are entered in the accounts as follows: Financial year 2006

Text Amount EUR

Interest calculated 27.12.2006 837,087.50

Financial year 2007

Text Amount EUR

Interest accrued 27.12.2006-26.12.2007 61,965,461.34

Of which calculated interest 27.12.2006-31.12.2006 -837.087,50

Calculated interest 27.12.2007-31.12.2007 799.285,85

Interest booked 2007 61,927,659.69

Financial year 2008

Text Amount EUR

Interest accrued 27.12.2007-26.12.2008 74.258.290,72

Of which calculated interest 27.12.2007-31.12.2007 -799,285.85

Calculated interest 27.12.2008-31.12.2008 389,071.12

Interest booked 2008 73,848,075.99

Financial year 2009

Text Amount EUR

Interest accrued 27.12.2008-26.12.2009 61.887.365,55

Of which calculated interest 27.12.2008-31.12.2008 -389,071.12

Calculated interest 27.12.2009-31.12.2009 338,136.74

Interest booked 2007 61,836,431.17

On the basis of the above, the accrual of interest and the evolution of the debt can be calculated as follows:

Date Text Amount EUR

27.12.2006 Borrowing 501,000,000.00

27.12.2007 Accrual of interest 61,965,461.34

27.12.2008 Interest accrued 74,258,290.72

27.12.2009 Accrual of interest 61.887.365,56

31.12.2009 Calculated interest 27.12.09-31.12.09 338,136.74

Booked residual debt at 31.12.2009 699.449.254,36

1.3. Group contributions between Nycomed Sweden Holding 2 AB and Nycomed Sweden Holding 1 AB

Nycomed Sweden Holding 2 AB has paid the following group contributions to Nycomed Sweden Holding 1 AB:

Year Amount EUR

2006 839.611

2007 60.468.000

2008 75.621.000

2009 60.353.294

Total 197.281.905

Group contributions are not paid in cash but are credited to the intercompany account between the 2 companies.

In a letter dated 19 November 2010, Anders Bjørn and Charlotte Götzsche of KPMG stated, inter alia, the following in relation to this matter:

There is no agreement on the amount of the group contribution, the calculation or the payment of the group contributions. It is decided year by year and depends on many things, including whether the Swedish requirements for payment of group contributions are met. In particular, the requirement of more than 90% ownership throughout the year, as management has a varying shareholding in SWE2.

It is thus the management/board of SWE2 that decides whether group contributions etc. are to be paid. In this context, the management must of course assess whether it is financially responsible to pay group contributions.

The group contributions are deducted from the (Swedish) taxable income of Nycomed Sweden Holding 2 AB, while it is income of Nycomed Sweden Holding 1 AB.

Loans between Nycomed Sweden Holding 1 AB and Nycomed S.C.A., SICAR

Nycomed Sweden Holding 1 AB borrowed EUR 498.5 million from Nycomed S.C.A., SICAR as at 27 December 2006.

According to clause 1 of the loan agreement, the loan is convertible.

Clause 5 states that the debt will bear interest at EURIBOR + 7,9 percentage points once a year. It also states that interest is payable only together with the principal.

The terms and conditions of the conversion are set out in TERMS AND CONDITIONS FOR CONVERTIBLE DEBENTURE SERIES 2006:1.

According to point 8, Nycomed Sweden Holding 1 AB may redeem the debt by issuing shares to Nycomed S.C.A., SICAR. However, this can be done at the earliest 5 years after the creation of the debt (i.e. 27.12.2011) and at the latest 27.12.2060.

Nycomed Sweden Holding 1 AB has recorded the following interest expenses:

Year Amount EUR

2006 837.087,50

2007 61.427.405,12

2008 75.403.757,25

2009 61.836.431,85

Total 199.504.681,72

1.5. Description of Nycomed Sweden Holding 2 AB

In addition to owning Nycomed A/S, the company has, as of 2007 according to the annual report, 10 employees working in research and development. The company's income statement excluding interest and tax consists of the salary costs of the 10 employees and an unnoted operating income. No development costs have been capitalised.

In addition, there is a Swedish subsidiary called Nycomed AB. According to the annual report for 2007, 10 employees were transferred to Nycomed Sweden Holding 2 AB as of 01.04.2007. According to the annual report, Nycomed AB is solely a sales company and has therefore not previously been active in research and development.

In a letter dated 1 October 2010, SKAT requested the following information regarding Nycomed Sweden Holding 2 AB:

- Please provide the reason why the 10 employees were transferred to Nycomed Sweden Holding 2 AB.

- Please provide information on whether the employees in question were given new tasks in connection with the transfer, including their professional qualifications to perform these tasks. The reason for this is that, according to the annual report, Nycomed Sweden Holding 2 AB is active in research and development, whereas Nycomed AB has operated solely as a sales company.

- Please clarify whether the activity has been acquired or started from scratch.

- If acquired, please provide a copy of the contractual basis. In this context, please explain why no intangible assets of any kind have been transferred.

- If it has been started from scratch, i.e. without acquisition of development costs, patents, know-how or similar, please provide details of the type of activity started.

- Please explain why no development costs have been capitalised.

- Please state whether the 10 employees concerned have physically moved to a new address and, if so, where they have moved from and to.

In a letter dated 19 November 2010, Anders Bjørn and Charlotte Götzsche of KPMG stated the following in relation to this matter:

Nycomed Sweden Holding 2 AB

In connection with the acquisition of Altana at the end of 2006, the Nycomed group is undergoing a major restructuring with a view to integrating the 50 acquired entities in the most optimal way.

One of the elements of this restructuring is to place various corporate functions more appropriately in relation to the operation, which has more than doubled in size compared to before.

One of the Group's main tasks, namely registration of medicinal products with the authorities and work in connection with clinical trials, has hitherto been carried out in part by Nycomed AB, which has also acted as a sales company on the Swedish market.

It is considered inappropriate to have this Group function located downstream and for this reason, among others, the Group establishes Nycomed Sweden Holding 2 AB (SWE2) and transfers, by way of transfer of activities, registration of medicinal products and monitoring of clinical trials from Nycomed AB to SWE2.

As requested, we have attached a copy of the transfer agreement including appendix as Annex 5.

SWE2 will also take over part of the lease occupied by Nycomed AB and thus remain at the same address.

There is therefore no question of a new activity being started up in SWE2. It is the same activity that was previously carried out by Nycomed AB, but more appropriately located. Nycomed AB will not perform any group functions, but will be a sales company on the Swedish market only. In addition, Nycomed AB assists SWE2 with accounting support and payroll administration for the 10 employees.

SWE2 is financed entirely by equity and will become the parent company of Nycomed A/S in the context of the restructuring. This is mainly due to the fact that with full equity financing it is significantly easier to set up an incentive programme for the management than if the joint venture also took on debt.

SWE2 is partly owned by Nycomed Sweden Holding 1 AB (>90%) and partly by the management of the group (<10%).

It is thus also in SWE2 that the management incentive scheme is established. SWE2 is thus the ultimate joint company of the Group, SWE1 being solely owned by the Funds through the Luxembourg company.

This is further supported by the fact that the current Board of Directors includes representatives of the owners and thus has full decision-making power to decide on any disposition of the shareholding of the Nycomed Group.

Finally, it should be stressed that the loan from SWE2 to Nycomed A/S is a normal loan concluded under normal market conditions and that the Group has complied with all rules on thin capitalisation, interest rate caps and EBIT limitations on the deductibility of interest expenses. The loan is also a refinancing of a previously external loan PIK notes.

Thus, no abuse situation exists in relation to Danish double tax treaties or in relation to the Interest/Royalty Directive.

The transfer between Nycomed AB and Nycomed Sweden Holding 2 AB has been agreed for 2 April 2007, see section 4.1 of the transfer agreement.

Clauses 1.2 and 1.3 of the Agreement state the following:

1.2 The Seller is active, inter alia, in the provision of services relating to clinical trials, medical in-formation and regulatory approvals (the part of Seller's operations relating to such services is hereinafter referred to as the "Business").

1.3 The Seller now wish to transfer and the Buyer now wish to acquire the business assets and know-how relating to the Business on the terms set forth in this Agreement.

Clause 2.1 of the Agreement provides as follows:

2.1 The Business transferred under this Agreement shall comprise the following assets and contractual rights and obligations:

(a) Assets and inventories, as set forth in Appendix 1;

(b) Employees, with salaries, benefits and accrued vacation salaries as set forth in Appendix 2; and

(c) Agreement and contractual rights and obligations, as set forth in Appendix 3.

Clause 3.1 of the Agreement states that the net amount of the transfer is

SEK -927,075, which is the amount Nycomed Sweden Holding 2 AB has to pay to Nycomed AB. The transfer amount consists of SEK 225,641 for assets and inventories and SEK -1,152,716 for accrued vacation salaries. The operating assets consist mainly of desks and PCs.

Letter c above includes an administration agreement for Nycomed AB to provide, inter alia, bookkeeping and payroll services to Nycomed Sweden Holding 2 AB and a rental agreement for offices.

Nycomed Sweden Holding 2 AB has had the following accounting operating results for 2006-2009:

Text 2006 2007 2008 2009

Other income 0 1,193,131 1,726,601 1,238,442

Personnel expenses 0 -1,851,855 -4,912,421 -6,275,092

Other external cost

0 -302,705 -334,598 -519,292

Depreciation 0 -9.462 -9.462 -1.811

Interest income 839,662 61,437,884 75,498,014 62,074,499

Interest expenditure -50 -7,263 -118,861 -1,322,232

Profit before tax 839,612 60,459,730 71,849,273 55,194,514

Tax -235,091 -16,931,000 -21,173,880 -16,089,639

Profit after tax 604,521 43,528,730 50,675,393 39,104,875

Taxes can be broken down as follows:

Text 2006 2007 2008 2009

Tax -235,091 -16,931,000 -21,173,880 -16,089,639

Tax value of group contributions 235,091 16,931,000 21,173,880 15,872,916

Current tax 0 0 0 -216,723

The negative tax for 2009 here means that there is an expense and therefore a tax to be paid.

Amounts are in euro.

1.6. Description of Nycomed Sweden Holding 1 AB

This company acts solely as a holding company for Nycomed Sweden Holding 2 AB.

Nycomed Sweden Holding 1 AB has had the following accounting operating results for 2006-2009:

Text

Other external cost

0 0 -32,130 -33,932

Interest income etc. 285 4,191 5,368 25,564

Interest payable -825 987 -61 284 470 -72 866 092 -60 825 103

Profit before tax -825,702 -61,280,279 -72,892,854 -60,833,471

Tax 231,196 16,927,154 20,604,514 15,872,916

Profit after tax -594,506 -44,353,125 -52,288,340 -44,960,555

Taxes can be broken down as follows:

Text 2006 2007 2008 2009

Tax on operating profit 231,196 16,927,154 20,604,514 15,872,916

Tax on group contributions -235,091 -16,931,000 -21,173,880 -15,872,916

Current tax -3,895 -3,846 -569,366 0

The negative tax for 2006-2008 here means that there is an expense and therefore a tax to be paid.

Amounts are in euro.

1.7 Description of Nycomed S.C.A., SICAR

The "General Partner" (associé commandité) owns a "General Partner Share". The other investors (actionnaires commanditaires) own the remaining "Ordinary Shares".

According to the Articles of Association, the General Partner takes virtually all decisions. The other shareholders only have the right to subscribe at the general meeting.

"The General Partner has unlimited liability, while the other shareholders have limited liability.

The "General Partner" is not entitled to dividends but instead receives an annual "Management Fee".

The activity of the company consists solely in owning the shares in and the claim on Nycomed Sweden Holding 1 AB and the payment of the management fee to the "General Partner".

The Company also pays a small amount for "Provision for domiciliation, corporate and accounting fees". This is a payment typically made to a law firm for having a post office box and having accounting and registration done in the local company register.

The company does not pay tax on the interest income. Indeed, a note to the annual report states that SICAR companies are normally required to pay 29,63 % interest but are exempt from tax on income attributable to securities.

Nycomed S.C.A, SICAR had the following accounting operating results for 2006-2008:

Text 2006 2007 2008

Other external charges -2,310.00 -1,325,729.83 -1,204,292.33

Interest expenses, etc. -323.76 -225.00 -250.02

Interest income from group companies 825,986.81 61,732,642.83 72,416,763.39

Other interest receivable 303,003.18 66,796.59 24,520.43

Unrealised exchange adjustments 0 49,200,000.00 -16,300,000.00

Result 1,126,356.23 109,673,484.59 54,936,741.47

No income tax is payable. Amounts are in euros. The accounts for 2009 are not yet available.

2. Reason for the proposed amendment

2.1. Reference to laws and regulations

...

2.2. Preliminary determination of the justification

2.2.1. Formal issues in the case

A decision to withhold interest tax is not a tax assessment in the same way as a change of assessment of income or property tax. This means that the decision/administrative act is not subject to a number of special rules which otherwise apply in tax proceedings.

In SKM2005.9.HR (SKM2002.45.ØLR) it was held that the imposition of withholding tax on A-tax under Section 69 of the Withholding Tax Act is not an assessment subject to the current Tax Administration Act (now the Tax Administration Act).

In ordinary tax cases, SKAT would have until 1 May 2011 at the latest to send a proposal to amend the tax assessment for 2007, cf. Section 26(1)(1) of the Tax Administration Act. The tax claim itself as a result would not be time-barred until at least one year after the date of assessment, cf. Section 34a(2) of the Tax Administration Act.

However, as mentioned above, these rules do not apply in the present case and therefore the general provisions of the Administrative Procedure Act should be invoked. Therefore, SKAT is not limited by an appointment period. On the other hand, the one-year rule in Article 34a(2) does not apply either, so the general rules on limitation apply. According to Article 29(1) of the new Limitation Act, it entered into force on 1 January 2008. However, the earliest date on which the claim becomes time-barred is 1 January 2011, cf. the second indent of Article 30(1). This means that the interest tax for 2007 will become time-barred on 1 January 2011.

Therefore, SKAT has to implement the case very quickly. Thus, the interest tax claim must be due for payment and if this is not paid, action must be taken to interrupt the limitation period, e.g. requesting a deferral of payment of the tax by the company. All this must be achieved before the end of 2010.

Another effect of the ruling not being subject to the usual rules for tax assessments is that the rules for issuing a notice of intention to pay in Section 20 of the Tax Administration Act do not apply. According to this, the SKAT has, as a rule, an unlimited duty to consult. This means that SKAT has a duty to consult the taxpayer on both the factual and legal content of the case. Under Section 19(1) of the Administrative Procedure Act, which applies to this case, SKAT is only obliged to consult on factual information relevant to the case of which the taxpayer is not already aware.

In this case, however, SKAT chooses to issue the notice and the statement of affairs in the ordinary way.

2.2.2. Substantive issues of the case Introduction

The right to withhold interest tax on intra-group interest expenditure is provided for in Article 2(1)(d) of the Corporation Tax Act and Article 65D(1) of the Withholding Tax Act.

SKAT's presentation is structured in such a way that the internal law is described first. Then, the concept of beneficial owner in relation to the Double Taxation Convention is addressed. Finally, it considers whether there is an exemption from interest tax under the Interest Royalty Directive.

2.2.3. Internal law

As mentioned immediately above, the authority to withhold interest tax on intra-group interest expenditure is contained in Section 2(1)(d) of the Corporation Tax Act and Section 65D(1) of the Withholding Tax Act.

The right to withhold interest tax was first introduced by Act No 221 of 31 March 2004 amending various tax laws. The provision was inserted in Article 10(2) of the amending Act.

According to the first paragraph of point (d), the right to withhold interest tax covers the debts of Danish companies to foreign legal persons covered by Section 3B of the Tax Control Act.

The provisions of Section 3B of the Tax Control Act describe whether taxpayers are subject to decisive influence in the form of ownership or control of voting rights, such that more than 50 % of the share capital is directly or indirectly owned or more than 50 % of the voting rights is controlled. By Law No 308 of

Act No 308 of 19 April 2006 introduced, with effect from 1 May 2006, a provision in the third indent of Section 3B(2) to the effect that, in determining whether the taxpayer is deemed to have a controlling influence over a legal person or whether a controlling influence over the taxpayer is exercised by a legal or natural person, shares and voting rights held by other shareholders with whom the shareholder has an agreement on the exercise of joint controlling influence shall be taken into account.

In this case, it is clear that joint control has been agreed for Nycomed S.C.A., SICAR. Thus, the Articles of Association state that the "General Partner" takes virtually all decisions, while the other shareholders only have the right to vote at the General Meeting. Thus, the condition of controlled debt is fulfilled.

Article 2(1)(d)(3) of the Corporation Tax Act states that

The tax liability does not extend to interest if the taxation of the interest is to be waived or reduced pursuant to Directive 2003/49/EC on a common system of taxation applicable to interest and royalty payments made between associated companies of different Member States or pursuant to a double taxation convention with the Faroe Islands, Greenland or the State of residence of the recipient company, etc.

Point (d) has been amended several times since then, but not in respect of this matter. Today, the provision thus appears unchanged in point d, third indent (most recently by Legislative Decree No 1001 of 26.10.2009 on the taxation of income of limited liability companies, etc.). It is therefore, inter alia, the preparatory works of Act No 221 of 31.03.2004 that are relevant for the interpretation of the provision. The commentary to the Act is contained in LLF 2003-12-17 No 119 on the amendment of various tax laws.

In addition, the following was inserted by Article 10, No. 5 of the Amendment Act (Act No. 221 of 31.03.2004):

In Article 2(2), after the second paragraph, the following shall be inserted:

"The tax liability pursuant to paragraph 1(d) and (h) shall be definitively fulfilled by the withholding of interest tax pursuant to Section 65 D of the Withholding Tax Act."

Section 65D of the Withholding Tax Act was inserted by the same amending Act. Accordingly, Article 4(4) of the amending law states that

After section 65 C is inserted:

"Section 65 D. In connection with any payment or credit of interest to a company, etc., subject to tax under section 2(1)(d) of the Corporation Tax Act, the person on whose behalf the payment or credit is made shall withhold 30 per cent. of the total interest. The amount withheld is referred to as 'interest tax'. The obligation to withhold interest tax is incumbent on companies, foundations and associations having their registered office in the country. If the person on whose behalf the payment or credit is made is not domiciled in this country and the payment or credit is made by an agent domiciled in this country, the agent shall be responsible for withholding. The provisions of Article 46(3) shall apply mutatis mutandis.

Article 2(2) of the Corporation Tax Act was decisively amended on this point by Act No 335 of 07.05.2008 amending various tax laws.

Article 12(1) of the amending Act states, inter alia, that

§ Article 2(2), second to fifth indents, shall be repealed and replaced by the following

...

The income tax pursuant to paragraph 1(d) and (h) shall be 25 per cent of the interest and of the sums transferred. The tax liability shall be definitively discharged by the deduction of interest tax pursuant to Article 65d of the Withholding Tax Act. ............................

Article 7(8) of the same amending law also states that

In section 65 D(1), first indent, the words "30 per cent" shall be replaced by the following to: "25 per cent."

Both provisions were enacted with effect for interest paid or credited on or after April 1, 2008, pursuant to Section 15(8) of the Amendment Act.

2.2.3.1. Partial conclusion

This is interest on debts owed to legal persons covered by Section 3B of the Tax Control Act, which means that there is a basic legal basis for withholding interest tax.

However, this does not apply if the tax on the interest is to be waived or reduced under Directive 2003/49/EC on a common system of taxation applicable to interest and royalty payments (hereinafter referred to as the Interest and Royalty Directive) paid between associated companies of different Member States or under a double taxation agreement (hereinafter referred to as DTA) with the Faroe Islands, Greenland or the State in which the recipient company, etc. is resident. This is dealt with in points 1.2.2.4 and 1.2.2.5 below.

The rate of interest tax is 30 % for interest credited on 27 December 2007 and 25 % for interest credited on 27 December 2008 and 27 December 2009.

2.2.4. The question whether the taxation of the interest would have to be waived or reduced under a double taxation convention

2.2.4.1. The Joint Nordic Double Taxation Convention

The interest income accrues to Nycomed Sweden Holding 2 AB, which is resident in Sweden. It must therefore be considered whether Denmark - if interest tax is withheld - would be obliged to waive or reduce the taxation under the Joint Nordic Double Taxation Convention (JCT No 92 of 25/6 1997 of the Convention of 23/9 1996 between the Nordic Countries for the avoidance of double taxation with respect to taxes on income and on capital).

Article 11(1) of the DTA provides that

Interest arising in a Contracting State and paid to a resident of another Contracting State may be taxed in that other State only if that resident is the beneficial owner of the interest.

In the present case, the interest originates in Denmark and is paid to Nycomed Sweden Holding 2 AB, which is resident in Sweden. Under the provision, the starting point is therefore that Sweden has the right of taxation.

Thus, as a general rule, no interest tax is payable.

However, as can be seen, it is a precondition that Nycomed Sweden Holding 2 AB is the legal owner of the interest.

It is then necessary to consider what is meant by the concept of legal owner and whether Nycomed Sweden Holding 2 AB can be considered as such in this context.

2.2.4.2. SKAT's legal assessment of the concept of beneficial owner

The term "beneficial owner" has been used in the OECD Model Convention and its commentaries since the revision of the Model Convention in 1977. The commentary on the term "beneficial owner" has been progressively clarified, but there is no basis for arguing that this has materially changed the understanding of the term.

In the commentaries to the Model Convention, the question of the understanding of the term "beneficial owner" is now addressed in particular in paragraphs 12, 12.1 and 12.2, of Article 10, which state (with the emphasis added here)

"12. The requirement of beneficial ownership was inserted in Article 10(2) to clarify the meaning of the words "paid... to a person who is domiciled-

as used in paragraph 1 of the Article. This makes it clear that the source State is not obliged to renounce its right to tax income from dividends simply because the income was paid directly to a person resident in a State with which the source State has concluded a convention. The term "beneficial owner" is not used in a narrow technical sense, but must be read in context and in the light of the object and purpose of the Convention, including the avoidance of double taxation and the prevention of tax evasion and avoidance.

12.1 Where income is paid to a resident of a Contracting State who is acting in his capacity as agent or intermediary, it would not be consistent with the object and purpose of the Agreement for the source State to grant relief or exemption solely on the basis of the status of the immediate recipient of the income as a resident of the other Contracting State. The immediate recipient of income in this situation is a resident of the other State, but no double taxation arises as a result, since the recipient of income is not considered to be the owner of the income for tax purposes in the State in which he is resident. It would also be inconsistent with the object and purpose of the Convention for the source State to grant relief or exemption from tax in cases where a resident of a Contracting State, other than as an agent or intermediary, merely acts as a conduit for another person who is the actual recipient of the income in question. For these reasons, the report of the Committee on Fiscal Affairs "Double Taxation Conventions and the Use of Conduit Companies" concludes that a "conduit company" cannot normally be considered the beneficial owner if, although it is the formal owner, it in fact has very narrow powers which, in relation to the income in question, make it a "nullity" or trustee acting on behalf of other parties.

12.2 Subject to the other conditions of the Article, the limitation on the taxing rights of the source State continues to exist where an agent or intermediary, resident in a Contracting State or in a third State, is interposed between the beneficiary and the payer, unless the beneficial owner is resident in the other Contracting State. (The model text was amended in 1995 to clarify this point, which is consistent with the views of all Member States). States wishing to make this clearer are free to do so in bilateral negotiations."

In relation to the interpretation of the concepts of beneficial owner and pass-through entities, SKAT further refers to the then Minister of Taxation Kristian Jensen's answer to the Tax Committee of the Parliament on question 2 concerning L-30 - Draft Act on the conclusion of a Protocol amending the Double Taxation Convention between Denmark and the United States of America. The question was asked why Denmark had not entered a reservation against the use of pass-through entities, as had the United States. The reply states that a country should not enter a reservation that it will apply rules or interpretations mentioned in the OECD Model Notes.

In particular, there are three cases from international jurisprudence that deal with the qualification of the "beneficial owner".

...

The precedent value of the judgments is limited by the fact that they are given by foreign courts. Consequently, Danish courts are not, as a rule, bound by the case-law of foreign courts. However, the cases concern the beneficial owner concept in the Model Agreement, which also has res judicata value in Denmark, so the judgments nevertheless have some value.

The courts in Denmark have not yet taken a position on the concept. However, SKAT has lost 2 cases before the Tax tribunal. SKM2010.268.LSR concerns withholding tax under Section 2(1)(c) of the Corporation Tax Act on dividends and SKM2010.729.LSR concerns interest tax as in this case. The cases concern the same company and, as in this case, the money has not been channelled in Luxembourg to the shareholders of the Luxembourg parent company. In both cases, the Landsskattert placed decisive weight on the fact that there was no physical flow of funds through the Luxembourg parent company, thereby deeming it the rightful owner of the dividends (and interest).

However, SKAT does not agree with the rulings and has appealed SKM2010.268.LSR to the courts. SKM2010.729.LSR is so recent that it has not yet been appealed.

Therefore, the 2 rulings of the Tax tribunal cannot be relied upon.

SKAT's assessment of the specific situation

The Nycomed group has between the 4 top holding companies 2 intra-group loans of approximately EUR 500 million. As these are intra-group loans, the net interest expense for the whole group is DKK 0. Nevertheless, it is constructed in such a way that the interest expense is deducted in Nycomed A/S, while it is either tax neutral or tax free in the other companies.

Thus, the interest income in Nycomed Sweden Holding 2 AB is offset by a deductible group contribution. In Nycomed Sweden Holding 1 AB, the taxable group contribution is offset by a deductible interest expense to Nycomed S.C.A., SICAR, where the interest income is fully tax exempt under Luxembourg internal tax law.

This is precisely the core situation where interest tax is intended to be applied. The exemption for DBOs is introduced to avoid double taxation. The idea is that if another country with which Denmark has a DBO has the right to tax the interest income, the interest income will also be taxed in that country. The whole idea is that the interest is taxed once and only once. Without the DBO exemption, situations of double taxation would often arise and the DBO would not necessarily resolve them. On the other hand, it is not intended that the corresponding interest income, as in the present case, should not be taxed at all.

However, it is not sufficient that the situation in question is simply contrary to the purpose of the law. Consequently, taxation also requires a legal basis. However, the relationship is undoubtedly important in determining the limits to be applied in the specific case.

As stated above in point 2.2.4.2, point 12 of the commentary on the Model Convention states that

The term "beneficial owner" is not used in a narrow technical sense, but must be considered in its context and in the light of the object and purpose of the Convention, including the avoidance of double taxation and the prevention of fiscal evasion and avoidance.

Against this background, among others, SKAT does not consider that there can be a requirement that the recipient of the interest is legally obliged to forward the amount, for example by agreement. SKAT's interpretation is also more in line with a natural linguistic interpretation of the English term for the concept. The "beneficial owner" is thus the person who benefits from the interest, as opposed to the "legal owner", who is the formal owner of the interest. Moreover, the limited tax liability will always arise in groups, since it is a precondition that they are companies covered by Section 3B of the Tax Control Act. By virtue of the parties' common interest, they do not need to formalise a legal obligation to pass on the amount. If it were a requirement that the immediate creditor (in this case Nycomed Sweden Holding 2 AB) be formally/legally prevented from disposing of the interest, there would in practice hardly be any situations where interest tax could be applied at all, which can hardly be the intention.

In SKAT's view, it is sufficient that Nycomed Sweden Holding 2 AB and Nycomed Sweden Holding 1 AB do not have de facto control over the interest.

The question then is whether this is the case in this instance.

In SKAT's view, it has been decided in advance that Nycomed Sweden Holding 2 AB should pass on the interest to Nycomed Sweden Holding 1 AB in the form of a group subsidy. In the letter of 19 November 2010, Anders Bjørn has stated that the payment of group grants is decided year by year by the management of Nycomed Sweden Holding 2 AB.

SKAT considers it doubtful that the decision is taken by the management of Nycomed Sweden Holding 2 AB alone and that it is not decided in advance that the group contributions will correspond to the interest income. The management only owns shares in Nycomed Sweden Holding 2 AB and thus neither in Nycomed Sweden Holding 1 AB nor in Nycomed S.C.A., SICAR. Therefore, the management would not be interested in sending grants to a company in which they do not have an ownership stake. Yet they do. Nor would there be a tax benefit for the group as a whole if no deductible group contributions were made to Nycomed Sweden Holding 1 AB. Furthermore, in the letter of 19 November 2010, Mr Anders Bjørn stated that the representatives of the owners of the group are also represented on the board of Nycomed Sweden Holding 2 AB.

The letter of 19 November 2010 states that there were business considerations behind the transfer of the sub-activity from Nycomed AB to Nycomed Sweden Holding 2 AB. SKAT should not be able to categorically reject this. However, the scope of the transferred activity is extremely limited compared to the amount of the group contributions to Nycomed Sweden Holding 1 AB. Therefore, the activity in question cannot be given decisive importance in assessing whether Nycomed Sweden Holding 2 AB actually holds the interest.

Nor does SKAT consider it decisive that the interest and group contributions are not paid but merely credited. This follows partly from the general tax rules, where legal acquisition/obligation is decisive irrespective of cash flows. Moreover, it is clear from the first paragraph of Article 65D(1) of the Withholding Tax Act that the interest tax covers both interest paid and interest credited.

SKAT considers that the establishment of (another) legal owner requires that there is some connection between the various loans and payments, etc. This is also the case here. In this respect, it has been taken into account that both loans were taken out on 27 December 2006 and have almost the same principal, interest rate and payment (no payment before redemption after a number of years). It cannot be considered significant that the payments up to Nycomed S.C.A., SICAR change character, as instead of a back to back loan between the 2 Swedish companies there are group contributions. What matters is that the amounts are conditional on each other and offset the tax.

2.2.4.3. Partial conclusion

Neither Nycomed Sweden Holding 2 AB nor Nycomed Sweden Holding 1 AB is considered the legal owner of the interest in question.

Therefore, SKAT is not precluded from withholding interest tax as a result of the Nordic Double Taxation Convention.

2.2.5. The question whether the taxation of the interest should be waived under the Interest Royalty Directive

2.2.5.1. Beneficial owner under the Interest Royalty Directive

The introductory remarks to the Interest Royalty Directive 2003/49/EC state, inter alia, the following (with SKAT's emphasis):

(1) In an internal market having the character of a domestic market, transactions between companies of different Member States should not be subject to less favourable tax treatment than that applicable to the same transactions between companies of the same Member State.

(2) This requirement is not currently met in respect of interest and royalty payments; national tax laws, possibly combined with bilateral or multilateral conventions, may not always ensure the elimination of double taxation and the application of tax rules often results in burdensome administrative formalities and liquidity problems for the companies concerned.

(3) It is necessary to ensure that interest and royalties are taxed only once in a Member State.

(4) The most appropriate way of eliminating the aforementioned formalities and problems, while ensuring equality of tax treatment for national and cross-border transactions, is to abolish the taxation of interest and royalties in the Member State where they arise, whether by deduction at source or by assessment; it is particularly necessary to abolish such taxes in respect of payments between associated companies of different Member States and between permanent establishments of such companies.

(5) The scheme should apply only to any interest or royalties which would have been agreed between the payer and the beneficial owner in the absence of a special relationship

(6) Member States should not be prevented from taking appropriate measures to combat fraud and abuse.

...

(10) Since the objective of this Directive, namely the establishment of a common system of taxation applicable to interest and royalty payments made between associated companies of different Member States, cannot be sufficiently achieved by the Member States and can therefore be better achieved at Community level, the Community may adopt measures, in accordance with the principle of subsidiarity as set out in Article 5 of the Treaty.

The purpose of the Directive is thus to ensure that interest paid across frontiers between Member States is treated in the same way as interest paid within frontiers of individual Member States, but that this regime applies only to any interest which would be agreed in the absence of a special relationship. In addition, the aim is to ensure that interest is taxed in one Member State and to combat abuse and fraud.

The concept of beneficial owner is therefore already mentioned in the introductory remarks. In addition, the concept appears in Article 1, which reads as follows (with SKAT's emphasis):

"Article 1

..."

For this reason alone, it is undoubtedly the case that EU law does not preclude the implementation of a withholding tax on interest in Denmark in cases where the beneficial owner is not resident in the EU.

The fact that interest is subject to withholding tax when it is paid to a non-resident company does not constitute a restriction on freedom of movement, if only because there is no tax discrimination.

This has also been expressly stated by the Court of Justice of the European Union in its judgment of 22 December 2008 in Case C-282/07, Truck Center,

...

Furthermore, SKAT is of the opinion that the case law of the Court of Justice shows that there is nothing to prevent companies established in another Member State from relying on EU law - including the harmonised rules resulting from, inter alia, the Directive - where the establishment of a holding company in another Member State "is aimed at avoiding withholding tax on payments to non-European companies where such a structure serves no commercial purpose", see Commission interpretation of "Purely artificial arrangements" published in OJ 2008, C 116/13.

The clear wording of Article 2(1)(d) of the Corporation Tax Act implies that Denmark shall not exempt from withholding tax unless there is a genuine obligation to do so under the Interest Royalty Directive.

In summary, it is SKAT's view that the concept of beneficial owner in relation to the Directive is similar to the concept in relation to the DTTs. As shown above, the concept has existed for a number of years in the OECD Model Tax Convention before being introduced in the Parent Subsidiary Directive and the Interest Royalty Directive. In this context, there appears to be no evidence that the scope of the concept is broader or narrower than in the OECD Model Tax Convention. However, the European Court of Justice has not yet taken a position on the concept. The fact that Article 1(4) of the Interest Relief Directive refers only to and not as an intermediary, including as an agent, nominee or authorised signatory for another person. cannot lead to a different result, since the specification is not exhaustive.

For the same reasons as set out in section 2.2.4.2 above, neither Nycomed Sweden Holding 2 AB nor Nycomed Sweden Holding 1 AB is considered to be the legal owner of the interest in question for the purposes of the Interest Royalty Directive.

The next question to be addressed is whether Nycomed S.C.A., SICAR is the legal owner. The difference with the Swedish companies is that there is no flow-through in the sense that the interest is immediately channelled to the owners.

As mentioned above under point 2.2.4.2, SKAT has lost 2 cases in the Tax Court because the Tax Court has put decisive weight on the fact that there was precisely no flow through from the Luxembourg parent company. However, the rulings are/will be appealed to the courts, which is why SKAT continues to take the view that physical flow-through is not necessarily decisive.

As also mentioned above under point 2.2.4.2, point 12.1 of the commentary to the Model Agreement states that a company is not the beneficial owner if it acts merely as a flow-through entity. However, this is not an exhaustive definition of the concept. There is thus no basis for arguing that it is the actual throughput that is decisive. A natural linguistic understanding of the Model Agreement and the commentaries thereto thus implies that the emphasis must be placed on the actual powers of the formal recipient of the amount in relation to decisions on how to dispose of the amount received.

In the present case, Nycomed S.C.A., SICAR can, in principle, dispose of the asset in the usual way. As a legal entity, the company is admittedly represented by its owners and in particular by its general partner. This is also the case for the vast majority of companies, but this does not call into question the fact that the company is the legal owner of a given claim.

However, as mentioned above, attention should be drawn to the comments on point 12 of the Model Agreement:

The term "beneficial owner" is not used in a narrow technical sense but has to be seen in context and in the light of the intention and purpose of the Agreement, including the avoidance of double taxation and the prevention of tax evasion and avoidance.

In this case, it has not been necessary to make back to back loans to the owners of Nycomed S.C.A., SICAR, as the company does not have to pay tax on the interest income. Instead of interest, the owners will later receive the total amount (principal and accrued interest) as dividends.

Therefore, SKAT does not consider Nycomed S.C.A., SICAR to be the legal owner of the interest income. Instead, it is the owners of this company who are the beneficial owners.

2.2.5.2. Anti-abuse provision under EU law and the Interest Royalty Directive

As a preliminary remark, it should be noted that in the case of transactions aimed at tax avoidance, evasion or abuse, situations may arise where the EU citizen cannot rely on the protection afforded by EU law. This applies both to specific Regulations and Directives - including the Interest Royalty Directive - and to the EU Treaties in general, e.g. Articles 63-66 TFEU on the protection of the free movement of capital.

Case law of the Court of Justice

The case law of the Court of Justice of the European Union on the concept of abuse includes the Cadbury Schweppes judgment (Case C-196/04 Cadbury Schweppes [2006] ECR I-7995), the Halifax judgment (Case C-255/02 Halifax [2006] ECR I-1609) and the Part Service judgment (Case C-425/06 Part Service Srl).

In the Cadbury-Schweppes judgment, the Court of Justice stated in relation to the English CFC rules, inter alia:

... for a restriction on the freedom of establishment to be justified by the need to combat abuse, the specific purpose of such a restriction must be to prevent conduct consisting in the creation of purely artificial arrangements, not based on any economic reality, in order to avoid the tax normally due on profits from activities carried on in the national territory.

The Halifax VAT judgment concerns pass-through companies, in that the case concerned a VAT-exempt bank with a 5% VAT deduction which passed its relevant transactions through a fully VAT-registered subsidiary in order to obtain a full VAT deduction.

On the judgment and its implications in the subsequent Part Service Srl case, the VAT Guide 2010-2, section C.4. states:

Benefits deriving from the provisions of the VAT legislation, including the rules on deduction, cannot be claimed when the transactions, etc., justifying this right constitute an abuse.

It follows from the case-law of the Court of Justice of the European Communities, see Case C-255/02 Halifax plc, paragraphs 74 and 75, that a finding of abuse requires the following conditions to be met:

- the transactions in question, even if the conditions laid down by the relevant provisions were formally complied with, would involve the grant of a tax advantage which would be contrary to the purpose of those provisions

- It must also be apparent from a set of objective circumstances that the main purpose of the transactions in question is to obtain a tax advantage.

The fact that the main and not the sole purpose of the transaction is to obtain a tax advantage was held by the Court of Justice in the subsequent judgment in Case C-425/06 (Part Service Srl.) to be sufficient for a finding of abuse.

In assessing the main purpose, the purely artificial nature of the transactions, together with the legal, financial and/or personal links between the operators taking part in the tax relief scheme, may be taken into account, see Halifax, paragraph 81.

In assessing the main purpose of establishment, the Court of Justice has paid particular attention to whether there is substance in the company's country of domicile or whether there is a purely artificial arrangement, which involves not only formal establishment but also the actual pursuit of economic activity.

Article 5 of the Interest Directive

In relation to the Interest Relief Directive, Article 5 states:

...

There is thus a court-made case law on the general EU law concept of abuse and a specific abuse provision in Article

5. As will be seen below, it is SKAT's view to deny the benefits of the Directive on the basis of both.

Implementation in Danish law

The starting point is that directives do not have direct effect vis-à-vis Member States. They are therefore obliged to implement it in their legislation. If this is not done, the citizen can invoke the directive. However, on the basis of the so-called principle of legal certainty, the Member State cannot invoke a directive against the citizen.

This is clear, inter alia, from paragraph 42 of the Kofoed judgment (Case C-321-05 Kofoed [2007] ECR I-5795):

...

The InterestRoyalty Directive as such has been implemented in Danish law. This is clear from Article 2(1)(d)(3) of the Corporation Tax Act:

The tax liability does not cover interest if the taxation of the interest is to be waived or reduced in accordance with Directive 2003/49/EC on a common system of taxation of interest and royalties...

The abuse provision in Article 5 is optional for Member States (This Directive does not preclude the application of national ).

The question then is whether it is sufficient to adopt, as in this case, that the Directive (as a whole) is applicable or whether Article 5 must be implemented separately.

It is SKAT's view that the abuse provision in Article 5 has been implemented in Section 2(1)(d) of the Corporation Tax Act.

This follows from the wording: .....interest must be waived or reduced.....

There appears to be nothing in the comments on the draft law to suggest a different interpretation.

On the contrary, SKAT's interpretation is supported by the comments to the bill on the adoption of withholding tax on dividends in Article 2(1)(c) of the Corporation Tax Act.

The third sentence of this provision provides:

It is a condition that the taxation of the dividend must be waived or reduced in accordance with the provisions of Directive 90/435/EEC on the common system of taxation applicable in the case of parent companies and subsidiaries of different Member States or in accordance with a double taxation agreement with the Faroe Islands, Greenland or the State in which the company is resident.

This sentence was inserted by Act No 282 of 25 April 2001 (Article 1(1) of the amending Act), the purpose of the amendment being to reintroduce the withholding tax on dividends. In the original draft law (L 99 2000/0l), the provision was proposed to be worded as follows:

It is a condition that the parent company is resident in a State which is a member of the EU, in a State with which Denmark has a double taxation convention, in the Faroe Islands or in Greenland, and that the subsidiary is covered by the concept of company of a Member State in Article 2 of Directive 90/435/EEC.

However, during the discussion of this proposal, the Minister for Taxation tabled an amendment (LFB 2001-03-21 No 99) (corresponding to the final wording of the provision), justifying it as follows:

It is proposed to clarify that it is a condition for the proposed tax exemption that Denmark must exempt the dividend in question from taxation under the provisions of the Parent/Subsidiary Directive or that Denmark must exempt or reduce the taxation of the dividend in question under the provisions of the double taxation convention with the Faroe Islands, Greenland or the other State concerned.

Both the wording and the preparatory works thus make it clear that withholding tax must be applied unless such taxation is contrary to EU law and/or the DTTs.

In the subsequent adoption of the interest tax in point (d), no such clarification was necessary as the correct wording was already included in the proposed legislation.

SKAT's concrete assessment

SKAT considers it clear that the abuse provision of Article 5 can be invoked in this case.

In the light of what has been stated in section 2.2.4.2 above, it must be considered established that there are transactions for which tax avoidance or abuse is the main motive or one of the main motives. Consequently, it is not the taking out of the loan itself which is considered not to be commercially motivated. Rather, it is the very placement of the arrangement through 3 parent holding companies that allows the interest expense to be deducted for tax purposes in Nycomed A/S, while the interest income is not taxable in Nycomed S.C.A., SICAR.

It is then debatable whether the distinction should be made solely on the basis of the wording of Article 5(2) or whether the concept of abuse is further delimited by the general case law of the European Court of Justice in this area. In that case, it would not be sufficient that the main motive is tax avoidance. In addition, the arrangement must be purely artificial and, apart from the tax motives for the transaction, there must be no actual economic activity.

In any event, however, SKAT considers that the arrangement is purely artificial.

First, there appears to be no immediate business motive for having both Nycomed Sweden Holding 1 AB and Nycomed S.C.A., SICAR as parent holding companies. The management of the group is as stated in Nycomed Sweden Holding 2 AB. Furthermore, there appears to be no business reason for locating the ultimate holding company in Luxembourg.

Operations are carried out partly from Nycomed Sweden Holding 2 AB and partly from the General Manager of Nycomed S.C.A., SICAR. However, for Nycomed S.C.A., SICAR, this consists solely of remunerating the General Manager, which is done by an addition to a suspense account. In addition, the activity only represents the holding of the share and the receivable. The practical aspects of bookkeeping, registration in the Luxembourg register of companies, etc. are dealt with by paying a third party for the "Provision for domiciliation, corporate and accounting fees".

Partial conclusion

Neither Nycomed Sweden Holding 2 AB, Nycomed Sweden Holding 1 AB nor Nycomed S.C.A., SICAR are considered as beneficial owners for the purposes of the Interest Directive.

The abuse provision in Article 5 of the Interest-Royalty Directive is deemed to have been implemented in Danish law.

The abuse provision is considered to be applicable in the present case.

2.2.6. Liability for interest not withheld

Section 69(1) of the Withholding Tax Act provides that

Any person who fails to fulfil his obligation to withhold tax or who withholds tax in an insufficient amount shall be immediately liable to the public authorities for payment of the amount due, unless he proves that he was not negligent in complying with the provisions of this Act.

The burden of proof is therefore on Nycomed A/S to prove that it should not have been aware that it was required to withhold tax. An example of a situation in which the withholding agent may be relieved of liability is where an employee cheats his employer and thus receives overpayments of tax-free allowances without the employer being responsible for not having discovered this.

However, the exemption does not apply in this situation. In this respect, it has been taken into account that Section 2(1)(d) of the Corporation Tax Act is a protective rule, that the Nycomed group has sought to circumvent this protective rule in the specific situation, and that there are parties with an interest in each other.

Thus, Nycomed A/S is liable for the interest tax.

2.2.7. Reduction of the interest tax on the basis of the ownership of Nycomed S.C.A., SICAR etc.

Since the owners of Nycomed S.C.A., SICAR are considered to be the beneficial owners of the interest income, it may be appropriate to grant a proportional reduction of the interest tax if the owners are to be exempted or relieved under a DBO or under the Interest Royalty Directive.

Accordingly, if this can be demonstrated, SKAT will grant such a reduction.

SKAT is currently carrying out a transfer pricing check on the interest rate. If the interest rate is changed, the interest tax will consequently be changed accordingly.

2.2.8. Overall conclusion

Joint management is deemed to have been agreed in Nycomed S.C.A., SICAR.

Neither Nycomed Sweden Holding 2 AB nor Nycomed Sweden Holding 1 AB is considered the legal owner of the interest in question for the purposes of the Nordic Double Taxation Convention.

Neither Nycomed Sweden Holding 2 AB, Nycomed Sweden Holding 1 AB nor Nycomed S.C.A., SICAR is considered the legal owner of the interest in question for the purposes of the Interest Royalty Directive.

Instead, the owners of Nycomed S.C.A., SICAR are deemed to be the legal owners.

Secondly, it is argued that even if Nycomed S.C.A., SICAR is considered the beneficial owner, it is not protected by the Directive, as the abuse provision of Article 5 can be invoked in the present case.

Therefore, there is a legal basis for the withholding tax, which can be calculated as follows:

Date to-

Amount in EUR Rate Amount in DKK Interest tax in % Interest tax in DKK

27-12-2007 61.965.461 745,68 462.064.052 30 138.619.216

27-12-2008 74.258.291 745,40 553.521.299 25 138.380.325

27-12-2009 61.887.366 744,33 460.646.228 25 115.161.557

Total 198.111.118 1.476.231.579 392.161.097

2.3. Company's view and justification

In a letter dated 9 December 2010, Anders Bjørn stated the following:

Nycomed A/S Renteskat j.nr. 28313519

We have received SKAT's proposed decision, dated 29 November 2010, on the withholding of interest tax for the period 2006-09. On behalf of our client, we hereby submit the following comments.

Factual comments on the case

We first have a few factual comments on the case. On page 1, it appears that The Blackstone Group is the owner of Nycomed S.C.A., SICAR. This is no longer the case as the Group sold its stake in 2006. On page 4 of section 1.2, it should be added that the purpose of the loan was to refinance the existing PIK note loan taken out in 2005 when Nycomed A/S acquired the Nycomed Group. This is further mentioned on page 3, top half.

Valuation

We do not agree with SKAT's assessment of the case. In our opinion, SKAT has no grounds for claiming withholding tax.

- Nycomed Sweden Holding 2 AB (SEW2) is the beneficial owner of the interest income and uses the interest income, among other things, to cover operating expenses and salaries in the company. The company thus has full disposal of the income and is under no obligation to pay the interest income on.

- Nycomed A/S has incurred interest expenses on an ordinary loan taken out (intra-group) to repay an external loan. There is therefore no abuse of Danish law, etc.

- In SKM 2010.729 LSR, the taxpayer succeeded in claiming that there were no grounds for withholding interest tax, as the interest amount had not been paid up through the structure to the ultimate owners (flow-through company). There is no flow-through in this case either. There is not even [...] a loan relationship established between the Swedish holding companies. For this reason alone, there is no way to argue that the interest income has flowed through SWE2 and on up through the structure and that SWE2 is thus not the rightful owner of the income.

According to the Tax Court's own ruling, the fact that there is a flow is an essential precondition for the assumption that the recipient, in this case SWE2, is not the rightful owner of the income.

In view of the advanced stage, we have chosen not to argue our views further at this stage. However, we would ask SKAT to reconsider its decision in the light of the above and to provide a final decision as soon as possible.

In conclusion, we would like to inform you that we accept that the limitation period under the Limitation Act is postponed from 31 December 2010 to 15 January 2011.

2.4. Final decision

With regard to the factual circumstances, the statement of case has now been corrected in accordance with the information contained in Anders Bjørn's letter of 9 December 2010.

The three points raised are then briefly addressed.

...

A decision has thus been taken in accordance with the proposal submitted."

Additional information on the group and the loans

According to the information provided, the Nycomed group was a global pharmaceutical company with a total of 12,500 employees, including 600 in Denmark, and had subsidiaries in over 70 countries during the period under investigation. The group was acquired in 2005 by a private equity consortium with Nordic Capital as the largest shareholder. The Nycomed group's ultimate Danish parent company was Nyco Holding ApS. The acquisition of Nyco Holding ApS was made through the newly created holding company Nycomed A/S (now Takeda A/S), which was directly owned by the participants in the private equity consortium. In order to acquire Nyco Holding ApS, Nycomed A/S had taken out an external loan of approximately EUR 400 million. In 2006, this debt was refinanced and the following ownership structure was established:

Over 95% of the shareholders of Nycomed S.C.A, SICAR were various private equity funds organised in tax transparent entities, typically limited partnerships. Nycomed A/S has indicated that there were several hundred investors in the capital funds, including pension funds, financial institutions, investment funds and companies, ordinary companies and individuals.

Nycomed A/S has further stated that these investors were resident in a wide range of jurisdictions, including within and outside the EU as well as within and outside States with which Denmark has concluded a double taxation agreement, and that approximately ⅔ of the direct investors in the endowment funds were independent taxpayers resident within the EU or in a State with which Denmark has concluded a double taxation agreement. Of the remaining investors, a significant proportion were so-called "fund-of-funds", i.e. tax-transparent entities for which it was not immediately possible to obtain information on the domicile of the investors.

The parties agree that the identity and domicile of the investors in the funds concerned have not been proven in the course of the proceedings.

A number of shareholder lists for Nycomed S.C.A., SICAR for the period 2007-2011 have been provided, showing that shareholder No 39 was a private individual - reportedly resident in the US - and shareholder No 41 was a Swedish bank. According to the information provided, during the period in question, the two shareholders each held 0,25 % and 1,15 % of the shares.

In 2011, Takeda Pharmaceutical Company acquired the shares of Nycomed A/S, thereby acquiring the Nycomed group (excluding the group's US operations), as further described below. Nycomed A/S changed its name to Takeda A/S.

Nycomed S.C.A., SICAR

Nycomed S.C.A., SICAR, was the parent company of the group. The company, which was based in Luxembourg, was fully equity financed. The company was operated under the legal form of Société en commandite par actions ("S.C.A."). The general partner of the company, which was responsible for the day-to-day management of the company, was Nycomed Luxco S.A. It appears from the annual reports submitted that four and five of the total of seven members of the Board of Directors of Nycomed Luxco S.A. were also members of the Boards of Directors of Nycomed Sweden Holding 1 AB and Nycomed Sweden Holding 2 AB respectively during the relevant period.

It has been indicated that an S.C.A. is a separate legal entity and a separate taxable person under Luxembourg law. The parties agree that, on this basis, an S.C.A. qualifies as a 'resident person' under the Double Taxation Convention between Denmark and Luxembourg and that it is subject to income tax in Luxembourg and therefore liable to pay corporate income tax and local business tax in Luxembourg on its income.

Nycomed S.C.A., SICAR, was registered under a Luxembourg law of 22 June 2004 as a "Société d'investissement en capital à risque" ("SICAR"). This implied that the company was exempt from income tax on income derived from its investments, i.e. interest, dividends and profits, as well as from withholding tax on dividends.

It has been reported that in the context of the refinancing of Nycomed A/S's external loans, the private equity consortium injected approximately EUR 500 million of equity into Nycomed, S.C.A., SICAR. This capital injection was the basis for Nycomed, S.C.A., SICAR's loan of EUR 498,500,000 to Nycomed Sweden Holding 1 AB. The company's investment portfolio consisted of a 100% stake in Nycomed Sweden Holding 1 AB. Apart from the ownership of and the loan to Nycomed Sweden Holding 1 AB, Nycomed S.C.A., SICAR, did not carry out any activities.

The loan to Nycomed Sweden Holding 1 AB was granted on 27 December 2006. According to the loan agreement, the loan bears interest at EURIBOR + 7,9 %, which is credited to the principal each year on 27 December. The interest on the loan was credited to the principal and was reported in the company's annual reports for the financial years 2007, 2008 and 2009 as accrued interest (interest for the period 28/12-27/12) of EUR 61 765 962, EUR 72 826 401 and EUR 60 825 103 respectively.

Nycomed, S.C.A., SICAR, made no distributions or other payments to the capital funds in 2007-2009.

Nycomed Sweden Holding 1 AB

Nycomed Sweden Holding 1 AB's sole activity was to act as the holding company for Nycomed Sweden Holding 2 AB. As mentioned above, the company took out a loan on 27 December 2006 from its parent company, Nycomed S.C.A., SICAR, for an amount of EUR 498 500 000. According to the company's annual reports (period from 1/1-31/12), the interest expenses booked by the company in respect of the loan in question for the financial years 2007, 2008 and 2009 amounted to EUR 61,284,470, EUR 72,866,092 and EUR 60,825,103 respectively. In accordance with the terms of the loan, the interest was continuously added to the principal of the loan and the company has deducted the interest when calculating its taxable income.

The money from the above loan was contributed by Nycomed Sweden Holding 1 AB as equity to Nycomed Sweden Holding 2 AB.

Nycomed Sweden Holding 2 AB

Nycomed Sweden Holding 2 AB, which was fully equity financed, was owned by Nycomed Sweden Holding 1 AB with approximately 97,5 % and by the group management with approximately 2,5 %. The company had the same board of directors as Nycomed Sweden Holding 1 AB during the relevant financial years. In 2007-2009, the company did not own any shares in companies other than Nycomed A/S.

The capital contribution from Nycomed Sweden Holding 1 AB was lent by Nycomed Sweden Holding 2 AB to Nycomed A/S by a loan agreement dated 27 December 2006.

The annual reports for 2007, 2008 and 2009 show that Nycomed Sweden Holding 2 AB had two income items, namely 'Övriga intäkter' and 'Renteintäkter och liknande resultatposter'. The company had no interest income other than the interest on the loan to Nycomed A/S. In 2007, 2008 and 2009, interest income represented 98,1 %, 97,8 % and 98 % respectively of the company's total income. The interest accrued on the loan to Nycomed A/S has been included in the determination of Nycomed Sweden Holding 2 AB's taxable income for the relevant income years. The interest income amounted to € 61,444,992, € 75,498,014 and € 61,836,446 respectively.

Nycomed Sweden Holding 2 AB has made group contributions to its parent company, Nycomed Sweden Holding 1 AB, of EUR 60,468,000, EUR 75,621,000 and EUR 60,353,294, respectively, during the financial years 2007-2009, in accordance with the special Swedish rules on tax equalisation within a group in Chapter 35 of the Swedish Income Tax Act.

The group contributions were deductible for the company making them, Nycomed Sweden Holding 2 AB, and taxable for the company receiving them, Nycomed Sweden Holding 1 AB.

As of 2 April 2007, Nycomed Sweden Holding 2 AB took over the activity of product registration with the authorities and various administrative work related to clinical trials, previously carried out by the Swedish company Nycomed AB. The company then employed approximately 10 people.

The day before the acquisition, on 1 April 2007, Nycomed Sweden Holding 2 AB and Nycomed AB entered into a Service Agreement. According to this agreement, Nycomed AB was obliged to provide 'any administrative services that [Nycomed Sweden Holding 2 AB] may require from time to time'. The assistance included, but was not limited to, 'accounting and financial services, HR and payroll services, IT and technical support services, services relating to invoicing and debt collection'. On the same day, Nycomed Sweden Holding 2 AB and Nycomed AB also entered into a lease agreement whereby the former leased part of Nycomed AB's premises where employees covered by the assignment remained located.

Nycomed A/S

Nycomed A/S, the ultimate Danish group company, was established in 2005 by the consortium which acquired the Nycomed group in the same year. In connection with the acquisition, Nycomed A/S had taken out a so-called PIK loan ("Payment-in-Kind") from external lenders. The interest rate on the PIK loan, which was raised at rate 99 and which matured in 2013, was a fixed 11,75 %.

As mentioned above, this loan was replaced by an intra-group loan, as Nycomed A/S borrowed EUR 501 million from the parent company, Nycomed Sweden Holding 2 AB, by loan agreement dated 27 December 2006, which was used to repay the PIK loan. According to the agreement, the interest rate is EURIBOR + 8 percentage points, which is credited to the principal each year on 27 December. The interest rate was 12.03% on 1 January 2007 and 9.24% at the end of 2009. The annual interest accruals for 2007, 2008 and 2009 amounted to EUR 61 444 992, EUR 75 498 014 and EUR 61 836 446 respectively, corresponding to EUR 462 064 052, EUR 553 521 299 and EUR 460 646 228 respectively. According to the loan agreement, the loan was not to be repaid until Nycomed A/S was sold.

Nycomed A/S has deducted the accrued, unpaid interest from its taxable income. Nycomed A/S did not withhold tax on the interest accrued.

"Management Shareholders Agreement"

Takeda A/S has submitted to the Court a Management Shareholders Agreement dated July 2007 between Nycomed Luxco S.A, Nycomed S.C.A., SICAR, Nycomed Sweden Holding 1 AB, Nycomed Sweden Holding 2 AB, Nycomed A/S, The Investor Shareholders and The Management Shareholders. The agreement governs in particular the rights and obligations of The Management Shareholders vis-à-vis the owners of Nycomed. S.C.A., SICAR. According to the agreement, The Management Shareholders are the sole owners of shares in Nycomed Sweden Holding 2 AB. The agreement contains, inter alia, a regulation of the possibilities to dispose of their shares, provisions on the breach of the agreement and a regulation of the "Exit".

The agreement states that an Investor Shareholders Agreement has been concluded at the same time between the same parties, with the exception of the Management Shareholders, and that this agreement will prevail in the event of any conflict between the two agreements in relation to the Management Shareholders. The agreement has not been produced in the proceedings.

Sale of the Nycomed Group in 2011 and 2012 - "Exit"

On 19 May 2011, the sale of the Nycomed Group (excluding the Group's US operations) to Takeda Pharmaceutical Company was agreed. The transfer was completed by Nycomed Sweden Holding 2 AB selling its shares in Nycomed A/S (Takeda) to Takeda Pharmaceutical Company on 30 September 2011. The sale price for the shares in Nycomed A/S was approximately €9.6 billion.

At the time of completion of the transfer of the shares in Nycomed A/S to Takeda Pharmaceutical Company, Nycomed A/S' debt to Nycomed Sweden Holding 2 AB on the loan in question (including accrued interest) amounted to EUR 812,900,414.

On 21 September 2011, immediately prior to the completion of the share transfer, Nycomed Sweden Holding 2 AB converted its entire receivable (including accrued interest) into new share capital of Nycomed A/S. The newly subscribed shares were included in the transfer to Takeda Pharmaceutical Company.

Immediately after the sale, Nycomed Sweden Holding 2 AB distributed a substantial part of the sales proceeds (approximately EUR 3,8 billion) to its parent company, Nycomed Sweden Holding 1 AB.

Nycomed Sweden Holding 1 AB re-distributed the major part of the proceeds received to its parent company, Nycomed S.C.A., SICAR, and in October 2011 repaid its loan (including accrued interest), totalling approximately EUR 790 million, to Nycomed S.C.A., SICAR.

Nycomed Sweden Holding 1 AB had a receivable from Nycomed Sweden Holding 2 AB at the time of the sale at the end of September 2011 of approximately €248 million relating to unreimbursed corporate contributions. This debt was subsequently waived by Nycomed Sweden Holding 1 AB deciding to grant a subsidy (aktieägartilskott) to its subsidiary, thereby offsetting the debt.

Following the sale of Nycomed A/S to Takeda Pharmaceutical Company, Nycomed Sweden Holding 2 AB then acted as the holding company for the US operating company through an intermediate US holding company. On 30 July 2012, Nycomed Sweden Holding 2 AB (which by then had changed its name to Fougera Sweden Holding 2 AB) sold its shares in the US holding company to the independent company Sandoz Inc. The purchase price amounted to approximately €1 billion. The majority of the proceeds were distributed in 2012 to Nycomed Sweden Holding 1 AB, which in turn distributed the majority to its parent company, Nycomed S.C.A., SICAR.

Nycomed S.C.A., SICAR, made repayments of paid-in capital and distributions of proceeds to its investors in connection with capital reductions in 2011 and 2012 totalling approximately €6.1 billion.

B-171-13 NTC Parent S.a.r.l. v Ministry of Taxation

SKAT decision of 18 March 2011

On 18 March 2011, SKAT ruled that Nordic Telephone Company Investment ApS was liable to withholding tax on interest payments/appropriations made during the period from 1 May 2006 to 10 July 2008 in favour of its parent company, Angel Lux Common S.a.r.l.

SKAT stated in this respect that the two Luxembourg companies, Angel Lux Common S.a.r.l. and Angel Lux Parent S.a.r.l. could not, in SKAT's view, be regarded as beneficial owners in relation to the intra-group interest payments/allocations, but rather as flow-through entities for a number of private equity funds and banks mainly resident in countries without a double taxation agreement with Denmark, and thus not entitled to benefit from the advantages deriving therefrom.

SKAT's decision of 18 March 2011 states, inter alia:

"Throughput in the form of interest accrual

1. Description of the company

Nordic Telephone Company Investment ApS is the ultimate Danish parent company of a number of Danish companies, including TDC A/S. The group also owns a number of foreign subsidiaries.

Nordic Telephone Company Investment ApS was incorporated on 10 November 2005. As of 14 November 2005, the company is a subsidiary of a group. During the period from 14 November 2005, the company is owned by companies in Luxembourg, which in turn are owned by five large private equity funds, and from

28 April 2006 also by foreign banks with a minor share.

2. Figures in DKK

Year of income Interest for the whole year Of which withholding tax on interest for the period

1.5.-31.12.2006 Of which withholding tax for the period

1.1.-31.3.2008 Of which withholding tax for the period

1.4.-10.7.2008 Interest tax rate Interest tax

2006

1.329.208.093

922.794.206

30 %

276.838.262

2007 1.410.657.397 30 % 423.197.219

2008 824.768.741 390.745.904 30 % 117.223.771

434.022.837 25 % 108.505.709

Total

925.764.961

3. Background

The case concerns whether Nordic Telephone Company Investment ApS should withhold interest withholding tax on interest paid on shareholder loans to Angel Lux Common S.à.r.l. for the period from 1 May 2006 to 10 July 2008.

In general, five private equity funds established a group of companies in Luxembourg and Denmark in the last half of 2005 with a view to acquiring TDC A/S (section 3.1).

The financing of the acquisition of TDC A/S has been achieved, inter alia, by the five private equity funds and others lending funds to Nordic Telephone Company Investment ApS.

The loans consist of a special type of corporate bonds, Preferred Equity Certificates (PECs) issued by Nordic Telephone Company Investment ApS in December 2005 and January 2006 (section 3.2).

The PECs were subsequently transferred in April 2006 by the 5 private equity funds and others to a newly established subsidiary in Luxembourg (Angel Lux Parent S.à.r.l.). This subsidiary immediately transferred the loan to another newly created subsidiary (Angel Lux Common S.à.r.l.) (sections 3.3 and 3.4). The latter subsidiary is thus the formal creditor of Nordic Telephone Company Investment ApS. Payments on transfer of PECs have been made by establishing debt relationships of equivalent size.

The interest under the PECs has been paid/accrued in a chain from Nordic Telephone Company Investment ApS through the companies in Luxembourg to the 5 private equity funds and others. (throughput) (section 4).

The interest of the PECs is paid/accrued during the period from the issuance on 21 December 2005 until 10 July 2008, when the debt conversion of the PECs issued by Nordic Telephone Company Investment ApS takes place, including for accrued interest.

3.1. Establishment of the Group

...

3.1.1. The 5 private equity funds set up 5 companies in Luxembourg

Kabler S.à.r.l., domiciled in Luxembourg, is being set up on 4 July 2005 by:

- Permira Europe III L.P,1

- Permira Europe III L.P.2

- Permira Europe III, Gmbh & Co. Kg

- Permira Europe III Co-Investment Scheme

- Permira Investments Limited

Angel Lux I S.à.r.l., incorporated in Luxembourg, will be established on 8 November 2005 by Apax WW Nominees Ltd.

Angel Lux II S.à.r.l., incorporated in Luxembourg, will be established on 8 November 2005 by:

- Blackstone Family Communications Partnership (Cayman) L.P.

- Blackstone Family Investment Partnership (Cayman) IV-A L.P.

- Blackstone Capital Partners (Cayman) IV-A Lp.

- Blackstone Participation Partnership (Cayman) IV L.P. Each company subscribes ¼ of the capital.

Angel Lux III S.à.r.l., established in Luxembourg, will be incorporated on

8 November 2005 by Providence Equity Offshore Partners V LP.

Angel Lux IV S.à.r.l., resident in Luxembourg, will be incorporated on

8 November 2005 by KKR Millennium Fund (Overseas) Limited Partnership.

3.1.2. Establishment of the NTC companies in Denmark

Nordic Telephone Company Investment ApS is incorporated on 10 November 2005. The shares are transferred on 14 November 2005 to the 5 newly incorporated companies in Luxembourg Angel Lux I S.à.r.l., Angel Lux II S.à.r.l., Angel Lux III S.à.r.l., Angel Lux IV S.à.r.l. and Kabler S.à.r.l.

Nordic Telephone Company Administration ApS and Nordic Telephone Company Finance ApS are incorporated by Nordic Telephone Company Investment ApS on 15 and 10 November 2005 respectively.

Nordic Telephone Company Holding ApS is incorporated by Nordic Telephone Company Finance ApS on 11 November 2005.

Nordic Telephone Company ApS is established on 21 October 2005 by external counsel and is acquired by Nordic Telephone Company Holding ApS on 30 November 2005.

3.2. Purchase of shares in TDC A/S

On 30 November 2005, Nordic Telephone Company ApS acquires 10,08 % of the share capital of TDC A/S for a purchase price of DKK 7 554 600 000 (approximately EUR 1 billion). At the same time, Nordic Telephone Company ApS makes a public bid for the remaining share capital of TDC A/S.

By way of a stock exchange announcement on 25 January 2006, it is announced that Nordic Telephone Company ApS has received sales acceptances for 78.1% of the share capital of TDC A/S and thus now owns 88.2% of the share capital of TDC A/S.

This shareholding was subsequently reduced to 87,9 % as a result of the repurchase of employee shares in December 2006.

The acquisition is financed, as described in more detail below, partly by borrowing from third parties and partly by capital increases from the ultimate Danish parent company, Nordic Telephone Company Investment ApS, down through the Danish part of the group.

The funds for these capital increases come mainly from the five capital funds. The capital is injected into Nordic Telephone Company Investment ApS in two ways:

First, the five Luxembourg companies increase the capital of the company.

2. Secondly, the company borrows from the five private equity funds and others. Thus, in connection with the acquisition of TDC A/S, Nordic Telephone Company Investment ApS issues PECs in two stages.

In general, PECs are a financial instrument similar to an interest-bearing corporate bond. The purchaser of the PECs thus effectively becomes the lender to the issuer of the PECs. The interest paid is considered by tax authorities in some countries as dividends to the owner of the PECs (the lender). One of the differences between shares and PECs is that the shareholder has security in the company and owns a stake in the company (equity), whereas the PEC owner has security as a creditor (in a receivable) in the company. Furthermore, PECs do not confer voting rights.

3.2.1. 21 December 2005 issue of PECs (section a) and capital increases (section b)

3.2.1.a. Issuance of PECs

PECs will be issued for the first time on 21 December 2005 for a total amount of EUR 822,532,075 (approximately DKK 6.1 billion).

The PECs will be purchased on 21 December 2005 by the 5 private equity funds involved as lenders:

- Apax Partners Worldwide LLP (Guernsey, Channel Island)

- The Blackstone Group International Limited (Cayman Island)

- Providence Equity Partners Limited (Cayman Island)

- Kohlberg Kravis Roberts & Co. L.P. (Canada)

- Permira Advisers KB. (Guernsey and Germany)

The Subscription and Shareholders Agreement of 7 December 2005 provides that PEC owners may not purchase more PECs than their shareholding in the company. Nevertheless, it is the indirect owners of Nordic Telephone Company Investement ApS who are buying the PECs issued on 21 December 2005.

The terms and conditions of the PECs are set out in part of the loan document for the PECs ("Exhibit A, PEC Terms") .

The loan document states that each PEC has a nominal value of EUR 25 and that the interest rate, the "yield", on the PECs is nominally 10% p.a., calculated on a daily basis (with compound interest).

However, account statements received from Nordic Telephone Company Investment ApS show that the interest is calculated on the principal amount of the loan - without the accumulated interest accruals, and therefore no compound interest is calculated.

The PEC issuer decides when to pay interest and principal. Any payment of interest will be made by paying the interest that has accrued first (a form of FIFO principle). However, interest and loans are due for payment in 2054 at the latest.

3.2.1.b. Capital increases

...

Capital increases of Luxembourg companies:

- Apax WW Nominees Ltd. makes a capital increase in Angel Lux I S.à.r.l. of EUR 372,400 (approximately DKK 2.8 million).

- The Blackstone companies are increasing the capital of Angel Lux II S.à.r.l. by EUR 451,125 (approximately DKK 3.4 million).

- Providence Equity Offshore Partners V LP will increase the capital of Angel Lux III S.à.r.l. by EUR 392,075 (approximately DKK 2.9 million).

- KKR Millennium Fund (Overseas) Limited Partnership shall increase the capital of Angel Lux IV S.à.r.l. by EUR 420,600 (approximately DKK 3.1 million).

- The Permira Companies and Schroder Ventures Investments Limited are making a capital increase in Kabler S.à.r.l. of EUR 408,100 (on 20 December 2005) (approximately DKK 3 million).

Capital increases of the companies in Denmark:

The five companies in Luxembourg make a capital increase on 21 December 2005 in Nordic Telephone Company Investment ApS of DKK 1,533,509,400 (approximately EUR 205.6 million).

Subsequently, capital increases are made down through the Danish part of the group:

- Nordic Telephone Company Investment ApS makes a capital increase in Nordic Telephone Company Administration ApS on 21 December 2005 of DKK 7,667,542,352 (approximately EUR 1 billion).

- Nordic Telephone Company Administration ApS makes a capital increase in Nordic Telephone Company Finance ApS on 21 December 2005 of DKK 7,667,542,352.

- Nordic Telephone Company Finance ApS makes a capital increase in Nordic Telephone Company Holding ApS on 21 December 2005 of DKK 7,667,542,352.

- Nordic Telephone Company Holding ApS will make a capital increase in Nordic Telephone Company ApS on 30 December 2005 of DKK 7,667,542,352 (which will already take place on 30 November 2005).

3.2.2. 25 January 2006 issue of PECs (section a) and capital increase (section b)

3.2.2.a. Issuance of PECs

PECs will be issued for the second time by Nordic Telephone Company Investment ApS on 25 January 2006. This will take place with a total value of EUR 1,011,370,475 (approximately DKK 7.5 billion).

A total of EUR 1,833,902,550 (approximately DKK 13.7 billion) of PECs have been issued since then.

The second pool of PECs will be purchased on 25 January 2006 by the following private equity funds and banks:

- Apax Partners Worldwide LLP (Guernsey, Channel Island)

- The Blackstone Group International Limited (Cayman Island)

- Providence Equity Partners Limited (Cayman Island)

- Kohlberg Kravis Roberts & Co. L.P. (Canada)

- Permira Advisers KB. (Guernsey and Germany)

- Deutsche Bank

- Credit Suisse

- Barclays

- JP Morgan

- RBS

3.2.2.b. Capital increases

...

Capital increases of Luxembourg companies:

- Apax WW Nominees Ltd. and Apax Angel Syndication Partners (Cayman) are increasing the capital of Angel Lux I S.à.r.l. by EUR

264,400 and EUR 85,225. Total EUR 349,625 (approx. DKK 2.6 million).

- The Blackstone companies make a capital increase in Angel Lux II S.à.r.l. of EUR 626,350 (approximately DKK 4.7 million).

- Providence Equity Offshore Partners V LP and 3 other Providence companies are making a capital increase in Angel Lux III S.à.r.l. of EUR 418,800 (approximately DKK 3.1 million).

- KKR Millennium Fund (Overseas) Limited Partnership and 2 other KKR companies will increase the capital of Angel Lux IV S.à.r.l. by EUR

479,150 (approximately DKK 3.6 million).

- The Permira companies and Schroder Ventures Investments Limited are making a capital increase in Kabler S.à.r.l. of EUR 470,675 (approximately DKK 3.5 million) (on 24 January 2006).

Capital increases of the companies in Denmark:

The five companies in Luxembourg made a capital increase on 25 January 2006 in Nordic Telephone Company Investment ApS of DKK 1,748,584,013 (approximately EUR 234 million).

The following banks will increase the capital of Nordic Telephone Company Investment ApS on 25 January 2006 by DKK 137,645,044 (approximately EUR 18.4 million) and will thereby also become shareholders:

- Deutsche Bank AG, London

- Credit Suisse International, London

- Barcleys Capital PLC, London

- J. P. Morgan Securities LTD., London

- J. P. Morgan Whitefriars Inc., London

- The Royal Bank and Scotland plc, London

The total capital increase in Nordic Telephone Company Investment ApS amounts to DKK 1,886,229,057 (approximately EUR 252.8 million).

Subsequent capital increases will be made down through the Danish part of the Group:

- Nordic Telephone Company Investment ApS makes a capital increase in Nordic Telephone Company Administration ApS of DKK 9,433,706,258 (approximately EUR 1.3 billion).

- Nordic Telephone Company Administration ApS makes a capital increase in Nordic Telephone Company Finance ApS of DKK 9,433,831,258 (approximately EUR 1.3 billion).

- Nordic Telephone Company Finance ApS makes a capital increase in Nordic Telephone Company Holding ApS of DKK 10,990,784,249 (approximately EUR 1.5 billion) on 30 January 2006.

- Nordic Telephone Company Holding ApS makes a capital increase in Nordic Telephone Company ApS of DKK 189,957,143 (approximately EUR 25.5 million) on 13 January 2006 and DKK 59,025,461,110 (approximately EUR 7.9 billion) on

30 January 2006.

3.3. Angel Lux Common S.à.r.l. and Angel Lux Parent S.à.r.l.

3.3.1. Foundation

Angel Lux Common S.à.r.l., domiciled in Luxembourg, will be incorporated on April 2006 from the 5 companies previously incorporated in Luxembourg:

- Angel Lux I S.à.r.l.

- Angel Lux II S.à.r.l.

- Angel Lux III S.à.r.l.

- Angel Lux IV S.à.r.l.

- Kabler S.à.r.l.

Angel Lux Parent S.à.r.l., also domiciled in Luxembourg, is incorporated on April 2006. Incorporation is carried out by a number of companies etc. related primarily to the five private equity funds.

The 5 companies Angel Lux I S.à.r.l., Angel Lux II S.à.r.l., Angel Lux III S.à.r.l., Angel Lux IV S.à.r.l. and Kabler S.à.r.l. owned Angel Lux Common S.à.r.l. from the incorporation of this company on 25 April 2006 until 20 December 2007. On the latter date, the 5 companies will be liquidated, so that Angel Lux Parent S.à.r.l. will then own Angel Lux Common S.à.r.l.

On 27 and 28 April 2006, the following share exchanges will take place:

- All shares in Nordic Telephone Company Investment ApS are transferred to Angel Lux Common S.à.r.l.

- The five Luxembourg companies will acquire all shares in Angel Lux Common S.à.r.l.

- The shares of the five Luxembourg companies are transferred to Angel Lux Parent S.à.r.l.

- The capital funds and the banks acquire all the shares in Angel Lux Parent S.à.r.l.

...[Please refer to the table inserted in the section on Additional information on the group and the loans.]

3.3.2. Transfer of PECs

On 27 April 2006, all the PECs of the 5 private equity funds etc. will be transferred to Angel Lux Parent S.à.r.l., which will transfer them to Angel Lux Common S.à.r.l. on the same day.

Angel Lux Common S.à.r.l. is the sole owner of all PECs as of 27 April 2006. The acquisition amount is equal to the principal amount without accrued interest on 27 April 2006.

Neither the 5 private equity funds nor Angel Lux Parent S.à.r.l. receive effective payment upon transfer of the PECs. The payment is made by establishing a debt relationship between, in the first place, the 5 private equity funds and Angel Lux Parent S.à.r.l. and, in the second place, between Angel Lux Parent S.à.r.l. and Angel Lux Common S.à.r.l.

As of 27 April 2006, Angel Lux Common S.à.r.l. owes Angel Lux Parent S.à.r.l. the same amount as Nordic Telephone Company Investment ApS owes Angel Lux Common S.à.r.l.

Similarly, Angel Lux Parent S.à.r.l. has a debt to the capital funds etc. in the same amount as Angel Lux Common S.à.r.l. has to Angel Lux Parent S.à.r.l.

The principal amount as at 27 April 2006 is: EUR 1,833,902,550 (approximately DKK 13.7 billion).

3.4. Reduction of debt and payment of interest

SKAT has received a statement ("PEC status 31-12-2006") from Nordic Telephone Company Investment ApS. This shows that on 6 October 2006 the company will pay interest of EUR 55,872,414 (approximately DKK 416 million) and reduce the principal by EUR 39,427,325 (approximately DKK 294 million), corresponding to a total of EUR 95,299,739 (approximately DKK 710 million).

Based on account statements received from Nordic Telephone Company Investment ApS, the payment of interest and principal [note omitted] is as follows:

Date Description EUR DKK

06.10.2006 Payments 75,513,322 approx.

09.10.2006 Payments 18,407,300 approx.

10.11.2006 Payments 1.129.746 approx.

Receivable from a PEC

owner 250,371 approx. 2 million

95,299,739 approx. 710 million

Payment is made in the following payment steps:

First step - TDC A/S declares dividend

On 11 April 2006, TDC A/S will distribute a dividend of DKK 43,481 million. (approx. EUR 5.8 billion)

In addition, on 29 June 2006, TDC A/S will distribute an extraordinary dividend of DKK 862 million. (approx. EUR 115 million) Of these two dividends, a total of approx. (EUR 670 million) will be distributed to minority shareholders.

On 11 April 2006, Nordic Telephone Company ApS will forward its dividend from TDC A/S to Nordic Telephone Company Holding ApS, DKK 39,533,903,000 (approximately EUR 5.3 billion).

Nordic Telephone Company Holding ApS has taken out an external loan - senior facility - in connection with the acquisition of TDC A/S. Nordic Telephone Company Holding ApS will use the dividend received to repay the senior facility loan. However, in order for TDC A/S to pay out dividends in the first place, it has to take out a loan. They are therefore taking over the senior facility loan. The distribution, the debt redemption and the debt assumption take place in conjunction.

Second step - Nordic Telephone Company Holding ApS pays dividends

On 18 April 2006, Nordic Telephone Company Holding ApS distributes dividends to Nordic Telephone Company Finance ApS of DKK 2,363,867,000 (approximately EUR 316 million).

Nordic Telephone Company Finance ApS has also taken out an external loan - PIK loan [note omitted] - in connection with the acquisition of TDC A/S. Nordic Telephone Company Finance ApS is using the dividends received to repay the PIK loan.

Third step - Nordic Telephone Company Finance ApS provides loan

On 4 October 2006, Nordic Telephone Company Finance ApS takes out a new loan of EUR 95,800,000 (approximately DKK 718.5 million).

Nordic Telephone Company Finance ApS then grants a loan to Nordic Telephone Company Administration ApS of DKK 731,089,000 (approximately EUR 98 million).

Fourth step - Nordic Telephone Company Administration ApS declares dividend

On 6 October 2006, Nordic Telephone Company Administration ApS uses its loan from Nordic Telephone Company Finance ApS to distribute dividends of DKK 712,851,000 (EUR 95.6 million) to Nordic Telephone Company Investment ApS.

Fifth step Nordic Telephone Company Investment ApS pays interest and principal

Nordic Telephone Company Investment ApS will use the dividends received to pay interest and principal on the PECs, on 6 and 9 October 2006 and 10 November 2006, respectively.

As mentioned above, the account statement shows that Nordic Telephone Company Investment ApS pays a total of EUR 95,299,739 (approximately DKK 710 million). The "PEC status 31-12-2006" from the company shows that EUR 55,872,414 (approximately DKK 416 million) in interest and EUR 39,427,325 (approximately DKK 294 million) in instalments are paid to the various companies and banks in the group.

Of this amount, they pay interest/repayments of EUR 606,857 (approximately DKK 4.5 million) to Angel Lux Common S.à.r.l. and EUR 398,510 (approximately DKK 2.9 million) to Angel Lux Parent S.à.r.l.

All other payments are made directly to private equity funds and banks and include both interest and principal.

After payment, the debt ratio between all companies is reduced by EUR 39,427,325 (approximately DKK 294 million). The reduction is between Nordic Telephone Company Investment ApS and Angel Lux Common S.à.r.l., between Angel Lux Common S.à.r.l. and Angel Lux Parent S.à.r.l., and between Angel Lux Parent S.à.r.l. and the capital funds and banks.

...

In a letter dated 20 April 2010, Nordic Telephone Company Investment ApS provided information on the cash flows around PEC, including that on 19 June 2007 it paid EUR 502 439 to the owners of PEC, but the 2007 annual accounts of Angel Lux Common S.à.r.l. show that Angel Lux Common S.à.r.l. received only EUR 501 129 in 2007. The difference has not been disclosed to the SKAT. It is not clear from the accounts of Angel Lux Common S.à.r.l. and Angel Lux Parent S.à.r.l. whether the amount of EUR 501,129 has been passed on to Angel Lux Parent S.à.r.l.

3.5. Issuance of PECs in December 2006

On 7 December 2006, Angel Lux Parent S.à.r.l. will carry out a minor capital increase of EUR 800. The increase is made by HD Invest, Virum ApS

...

On 22 December 2006, Nordic Telephone Company Investment ApS also issues PECs to Angel Lux Common S.à.r.l.

Angel Lux Common S.à.r.l. will receive a corresponding increase in its debt to Angel Lux Parent S.à.r.l.

Angel Lux Parent S.à.r.l. also receives an increase in its debt, with HD Invest, Virum ApS entering as a partner and owner of the PECs with DKK 318,625 on 22 December 2006. The actual payment for PEC's extension will be made in March 2007.

3.6. Status at 31 December 2006

As of 31 December 2006, Nordic Telephone Company Investment ApS has a residual debt on the PECs to Angel Lux Common S.à.r.l. of EUR 1,917,212,261 (approximately DKK 14.3 billion).

Angel Lux Common S.à.r.l. has a residual debt on PECs to Angel Lux Parent S.à.r.l. of EUR 1,917,445,886 (approximately DKK 14.3 billion) as of December 31, 2006.

Angel Lux Parent S.à.r.l. has a residual debt on PECs to the private equity funds and the banks of EUR 1,917,853,096 (approximately DKK 14.3 billion) as of 31 December 2006.

Nordic Telephone Management Holding ApS is incorporated on 20 December 2006 and becomes a shareholder of Nordic Telephone Company Investment ApS on 22 December 2006.

Nordic Telephone Management Holding ApS is primarily owned by Angel Lux Common S.à.r.l. with 81.3% and the remainder by senior management.

...

4. Interest accrued on PECs from 21 December 2005 to 10 July 2008

4.1. 2006 income year:

Nordic Telephone Company Investment ApS has deducted the following interest expenses from the PECs for the income year 2006, due to a deferred accounting year:

EUR DKK

21 December 2005 - 31 December 2005 2,478,864 18,516,053

1 January 2006 - 31 December 2006 175,811,961 1,329,208,093

Total deducted for tax purposes 178,290,825 1,347,724,146

Nordic Telephone Company Investment ApS paid interest on the PECs on 6 October 2006, as described in section 3.4 above. The principal amount is therefore increased by the following interest as at 31 December 2006:

EUR DKK

Total interest expense

21 December 2005 - 31 December 2006 178,290,825 1,347,724,146

Interest paid at 6 October 2006 -55,872,414 -416,462,940

Accumulated interest 31 December 2006 122,418,411 931,261,206

Angel Lux Common S.à.r.l. and Angel Lux Parent S.à.r.l. earned the following interest income in 2006:

Amount in EUR

Angel Lux

Common S.à.r.l. Angel Lux Parent S.à.r.l.

Accumulated interest income 31 December 2006 122,418,411 122,076,311

Interest income received 6 October 2006 1,760,727 1,729,595

Total income 124,180,447 123,805,906

Angel Lux Common S.à.r.l. and Angel Lux Parent S.à.r.l. incurred the following interest expenses in 2006:

Amount in EUR

Angel Lux

Common S.à.r.l. Angel Lux Parent S.à.r.l.

Accumulated interest expense at 31 December 2006 122,076,311 122,101,996

Interest paid 6 October 2006 1,729,595 1,712,610

Total expenditure 123,805,906 123,814,606

For 2006, Angel Lux Parent S.à.r.l. has recorded as income the interest expenses deducted by Angel Lux Common S.à.r.l. for the PECs.

There are three different loan relationships illustrated below for 2006: (Amounts in EUR):

GÆLD Investment ALLOWED Common

Principal 1,833,902,550 Principal 1,833,902,550

Redemption (39,427,325) Redemption (39,427,325)

Increase 318,625 Increase 318,625

Total 1,794,793,850 Total 1,794,793,850

Interest

10% 122,418,411 Interest 10% 122,419,720

End of year 1,917,212,261 End of year 1,917,213,570

GOODWILL Parent

Principal 1,833,902,550 Principal 1,833,902,550

Redemption (38,851,600) Redemption (38,851,600)

Increase 318,625 Increase 318,625

Total 1,795,369,575 Total 1,795,369,575

Interest

9.96875% 122,076,311 Interest

9,96875% 122.076.311

End of year 1,917,445,886 End of year 1,917,445,886

GÆLD

Principal 1,833,902,550

Redemption (38,470,075)

Increase 318,625

Total 1,795,751,100

Interest

9,96875% 122.101.996

End of year 1,917,853,096

The table above shows that the principal at the beginning of 2006 is the same and that the debt at the end of 2006 is almost the same for the three companies.

It also appears that the debt reduction of EUR 39,427,325 (approximately DKK 294 million), as described in section 3.4 above, can be followed from Nordic Telephone Company Investment ApS to Angel Lux Common S.à.r.l., but the debt from Angel Lux Common S.à.r.l. to Angel Lux Parent S.à.r.l. is only reduced by EUR 38,851,600.

The debt of Angel Lux Parent S.à.r.l. to the PEC owners of the private equity funds and the banks is only reduced by EUR 38,470,075.

SKAT is not aware of the reason for the differences in the debt reductions.

Furthermore, it appears that the interest rate is 10% p.a. in Nordic Telephone Company Investment ApS, while it is 9.96875% p.a. in both Angel Lux Common S.à.r.l. and Angel Lux Parent S.à.r.l.

The composition of Angel Lux Parent S.à.r.l.'s debt as at 31 December 2006 to the PECs owners is as follows:

Amount in EUR

Principal Amount Due

Total debt

31.12.2006

Apax 282,989,375 19,241,847 302,231,222

Blackstone 421,854,900 28,684,000 450,538,900

352,262,200 23,952,049 376,214,249

Permira 348,946,375 23,726,589 372,672,964

Providence 317,467,075 21,586,156 339,053,231

Deutsche Bank, London Branch 23,475,125 1,596,190 25,071,315

Credit Suisse Securities Europe Limited 16,252,000 1,105,054 17,357,054

JP Morgan Whitefriars Inc 3,524,500 239,648 3,764,148

JP Morgan Securities Limited 7,310,200 497,057 7,807,257

Barclays Capital Princ. Invest. Limited 10,834,675 736,703 11,571,378

RBSM Invest. Limited 10,834,675 736,703 11,571,378

TOTAL

1.795.751.100

122.101.996

1.917.853.096

4.2. 2007 income year:

For the 2007 income year, Nordic Telephone Company Investment ApS deducted the following interest expense from PECs for tax purposes:

EUR DKK

Accumulated interest expenses 31 December 2007 191,218,786

Interest paid on 19 June 2007 502,439

Total expensed 191,721,225 1,410,657,397

Angel Lux Common S.à.r.l. and Angel Lux Parent S.à.r.l. earned the following interest income in 2007:

Amount in EUR

Angel Lux Common

S.à.r.l. Angel Lux Parent S.à.r.l.

Accumulated interest income at 31 December 2007 191,218,788 191,145,387

Interest paid in 2007 501,129

Total income 191,719,917 191,145,387

Angel Lux Common S.à.r.l. and Angel Lux Parent S.à.r.l. incurred the following interest expenses in 2007:

Amount in EUR

A

n g e Angel Lux Common

S.à.r.l. Angel Lux Parent S.à.r.l.

l Accrued interest 31 December 2007 191,145,387 191,164,588

For 2007, Angel Lux Parent S.à.r.l. has recovered the interest expenses deducted by Angel Lux Common S.à.r.l. for PECs.

Annex 9 contains a table showing the interest accruals relating to PECs for the 2007 income year of the three companies mentioned. The table is based on approximate figures in EUR for Nordic Telephone Company Investment ApS, as SKAT is only in possession of the precise interest accruals from this company in Danish kroner.

4.3. Income year 2008:

For the income year 2008, Nordic Telephone Company Investment ApS has deducted for tax purposes the following interest expenses of PECs:

EUR DKK

Accumulated interest expenses 1 January 2008 - 10.

July 2008 107,725,849

Interest paid on 27 June 2008 2,880,370

Total expenditure 110,606,219 824,768,741

Angel Lux Common S.à.r.l. and Angel Lux Parent S.à.r.l. earned the following interest income in 2008:

Amount in EUR

Angel Lux Common

S.à.r.l. Angel Lux Parent S.à.r.l.

1 January 2008 - 10 July 2008 107,149,774

1 January 2008 - 31 December 2008 210,515,257

Angel Lux Common S.à.r.l. and Angel Lux Parent S.à.r.l. incurred the following interest expenses in 2008:

Amount in EUR

Angel Lux Common

S.à.r.l. Angel Lux Parent S.à.r.l.

1 January 2008 - 31 December 2008 210,515,257 210,221,308

Angel Lux Parent S.à.r.l. has recovered for 2008 the interest expenses deducted by Angel Lux Common S.à.r.l. for PECs.

Annex 10 contains a table showing the interest accruals relating to PECs for the 2007 income year of the three companies mentioned.

The table shows that the interest expenses deducted by Nordic Telephone Company Investment ApS in the 2008 income year are significantly reduced compared to the 2 previous income years. This is due to the fact that the residual debt as well as the unpaid accrued interest will be converted into additional share capital in Nordic Telephone Company Investment ApS on 10 July 2008.

The interest will remain at 10% p.a. from Nordic Telephone Company Investment ApS to Angel Lux Common S.à.r.l. until the debt conversion on 10 July 2008.

The interest rate between Angel Lux Common S.à.r.l. and Angel Lux Parent S.à.r.l. is 9.96875% p.a. until 9 July 2008, and the same percentage is applicable further from Angel Lux Parent S.à.r.l. It appears from the financial statements of Angel Lux Common S.à.r.l. for the financial year 2009 that the rate of return on PECs between Angel Lux Common S.à.r.l. and Angel Lux Parent S.à.r.l. is changed on 9 July 2008 from 9.96875% p.a. to 10% p.a. The rate of return on PECs from Angel Lux Parent S.à.r.l. to the private equity funds and the banks remains unchanged at 9.96875% p.a.

The 2009 accounts of Angel Lux Parent S.à.r.l. are not yet available, so SKAT has not been able to conclude whether there is also a debt conversion here.

5. Activity of Angel Lux Common S.à.r.l. and Angel Lux Parent S.à.r.l.

Angel Lux Parent S.à.r.l. and Angel Lux Common S.à.r.l. in Luxembourg have, according to the annual accounts for the financial year 2006-2008, a minimal physical presence in Luxembourg.

Thus, the financial statements of Angel Lux Common S.à.r.l. for 2006 show on page 4 that there are expenses of EUR 8,701 referred to as Other external charges and expenses of EUR 209,349 referred to as Other operating charges.

These are specified in Annex 4 (see table below).

The accounts of Angel Lux Parent S.à.r.l. for 2006 also show on page 4 that there are expenses of EUR 3 337, which are referred to as Other external charges, and expenses of EUR 127 031, which are referred to as Other operating charges.

These are specified in Annex 4 (see table below).

Angel Lux Common S.à.r.l.

Autres charges externes (Other external charges) 8,701

Rémunération personnel (Salaries) 7,810

Cotisation sécurité sociale (Social security contributions) 891

Autres charges opérationnelles (Other operating costs) 209,349

Loyers et charges locatives (Rent and

gifter) 3,253

Telephone expenses 300

Notary fees (Notar) 7,030

Legal fees (Advokathonorar) 174,579

Accounting costs (regnskabsomkostninger) 5.000

Audit costs (Revisionsomkostninger) 10,000

Tax costs (Kosten skat) 6,000

Other personnel costs (Andre personaleom-

kostninger) 1,324

Social secretariat (payroll) 424

Travel and subsistence (Rejse og opholdsudgif-

ter) 644

Expenses for supplies (Forsyningsudgifter) 511

Other staff costs (Andre personaleom-

kostninger) 284

SKAT translation

Angel Lux Parent S.à.r.l.

Autres charges externes (Other external expenses) 3,337

Remuneration (Salaries) 2,996

Charges sociales (Social security contributions) 341

Other operating expenses 127,031

Loyers et charges locatives (Lease and local expenses) 3,253

Notary fees (Notar) 58,250

Legal fees (Advokathonorar) 43,170

Accounting costs (regnskabsomkostninger) 5,000

Audit costs (Revisionsomkostninger) 10,000

Tax costs (Kosten skat) 6.000

Social secretariat (salary) 324

Travel (Rejse) 820

Other personnel costs 214

SKAT translation

The accounts of Angel Lux Common S.à.r.l. and Angel Lux Parent S.à.r.l. thus show that modest expenses are paid for any employees and for furnishing/renting premises.

The income year 2006 is the first income year for the companies in Luxembourg, which may help to explain the high costs for lawyer and notary.

SKAT has requested documentation for the expenditure items from both Nordic Telephone Company Investment ApS and the Luxembourg authorities in the form of rental contracts, employment contracts and registration in Luxembourg as an employer. SKAT has also asked the Luxembourg authorities for a breakdown of the costs of the lawyer and the notary. The material has not been received.

The companies Angel Lux Common S.à.r.l. and Angel Lux Parent S.à.r.l. will not receive any additional liquidity except for the one-off amounts received from Nordic Telephone Company Investment ApS on 6 October 2006 of EUR 606 857 and EUR 398 respectively. In section 4 above, it is described that Nordic Telephone Company Investment ApS pays interest expenses to the PEC owners of EUR 502 439 and EUR 2 880 370 on 19 June and 27 June 2008 respectively. In addition, the companies have remaining cash from their incorporation to cover the losses of the companies.

From the accounts it can be concluded that Angel Lux Common S.à.r.l.'s only asset, apart from the subsidiary shares, is the claim on the PECs by Nordic Telephone Company Investment ApS.

The Luxembourg authorities have informed SKAT that Angel Lux Common S.à.r.l. and Angel Lux Parent S.à.r.l. are fully taxable in Luxembourg.

Angel Lux Common S.à.r.l. and Angel Lux Parent S.à.r.l. have their registered office at Boulevard de Prince Henri 41. The address has been checked by SKAT. It appears that the address is used as an office hotel. Although there is a building with offices, a google search shows that this is the address of several different companies (large and small).

The address is also used by companies directly linked to one of the 5 large private equity funds (Apax).

6. Other structural changes

6.1. The five intermediate companies in Luxembourg

Angel Lux I S.à.r.l., Angel Lux II S.à.r.l., Angel Lux III S.à.r.l., Angel Lux IV S.à.r.l. and Kabler S.à.r.l. will all be liquidated on 20 December 2007.

...

6.2. The debt conversion of Nordic Telephone Company Investment ApS and Angel Lux Common S.à.r.l.

On 10 July 2008, a debt conversion is carried out at Nordic Telephone Company Investment ApS by PECs of the remaining principal and accrued interest.

The ownership structure at 31 December 2008 is unchanged from the ownership structure at 31 December 2007 ...

The accounts of Angel Lux Common S.à.r.l. show that a debt conversion of Angel Lux Common S.à.r.l. will take place on 18 December 2009.

As mentioned above, the 2009 accounts of Angel Lux Parent S.à.r.l. are not yet available, which is why SKAT has not been able to determine from the accounts whether a debt conversion is also taking place here.

6.3. Mergers in Danish companies in 2009

In December 2009, the following mergers are adopted with retroactive effect to 1 January 2009:

- TDC A/S and Nordic Telephone Company ApS (with TDC A/S as the continuing company).

- Nordic Telephone Company Investment ApS, Nordic Telephone Company Administration ApS, Nordic Telephone Company Finance ApS and Nordic Telephone Company Holding ApS (with Nordic Telephone Company Administration ApS as the continuing company).

On 18 December 2009, an exchange of shares is adopted, whereby Angel Lux Parent S.à.r.l. acquires the shareholding in Nordic Telephone Management Holding ApS from Angel Lux Common S.à.r.l.

...

6.4. Dividends paid in 2009 to private equity funds, etc.

On 22 April 2010, the CFO of TDC A/S informed the press (Computerworld) that the Swiss competition authorities would not approve the sale by TDC A/S of part of its Swiss subsidiary, Sunrise. In this context, the CFO states that the group does not regret the payment of DKK 6 billion to shareholders.

In a press release dated 17 December 2009, the Group announced that the sale of Sunrise would bring in a good DKK 11 billion for TDC A/S, and it has therefore been decided to make an early dividend payment of DKK 6 billion to the company's shareholders in 2009.

As 87.9% of the share capital of TDC A/S is held by Angel Lux Common S.à.r.l., the largest part of the extraordinary dividend of DKK 6 billion will be channelled through Angel Lux Common S.à.r.l.

The financial statements of Angel Lux Common S.à.r.l. for the financial year 2009 show that the company's debt to Angel Lux Parent S.à.r.l. was converted into additional "share capital" on 18 December 2009, but the dividend from TDC A/S is not included in the financial statements of Angel Lux Common S.à.r.l.

The dividend share held by Angel Lux Common S.à.r.l. is therefore seen to have been transferred to the capital funds. However, it should be noted that SKAT does not currently have the annual accounts of Angel Lux Parent S.à.r.l. for the 2009 financial year, but the article in which the CFO of TDC A/S makes a statement does not refute the fact that the dividends ended up with the capital funds.

SKAT will investigate at a later stage whether dividend tax should have been withheld in connection with the payment of dividends at the end of 2009 to the capital funds.

Merger in 2010 of Angel Lux Common S.à.r.l. and Nordic Telephone Administration ApS

In the 2009 annual financial statements of Angel Lux Common S.a.r.l., on page 12, there is information that the Board of Directors of the Company has resolved on 15 January 2010 that the Company shall merge with Nordic Telephone Company Administration ApS with effect from 1 January 2010.

The Danish part of the Group has announced in a major shareholder announcement dated 16 April 2010 that the ultimate Danish company (as of 1 January 2009), Nordic Telephone Company Administration ApS will merge with Angel Lux Common

S.a.r.l. with effect from 1 January 2010.

Angel Lux Common S.a.r.l. will become the continuing company and Nordic Telephone Company Administration ApS will be dissolved by the merger.

As a result, Angel Lux Common S.a.r.l. will become the owner of 87,9 % of the shares in TDC A/S.

...

7. Withholding tax on interest

7.1. Internal law

Section 2(1)(d)(1) of the Corporation Tax Act provides that companies and associations etc. referred to in Section 1(1) which have their registered office abroad are liable to tax in Denmark if they receive interest from sources in Denmark on debts which a company or association etc. referred to in Section 1 or (a) has to legal persons referred to in Section 3B of the Tax Control Act (controlled debts). Under Section 2(1)(d) of the Corporation Tax Act, there is thus, as a general rule, limited tax liability for intra-group interest.

The provisions of Section 3B of the Tax Control Act describe whether taxpayers are subject to decisive influence in the form of ownership or control of voting rights, such that they directly or indirectly own more than 50 % of the share capital or control more than 50 % of the voting rights. By Law No 308 of

Act No 308 of 19 April 2006 introduced, with effect from 1 May 2006, a provision in the third indent of Section 3B(2) to the effect that, in determining whether the taxpayer is deemed to have a controlling influence over a legal person or whether a controlling influence over the taxpayer is exercised by a legal or natural person, shares and voting rights held by other shareholders with whom the shareholder has an agreement on the exercise of joint controlling influence shall be taken into account.

Section 2(2)(3) of the Ligningsgesetz (German Equalisation Act) states that decisive influence means ownership or control of voting rights such that more than 50 % of the share capital is owned or more than 50 % of the votes are cast, directly or indirectly.

As an exception to the starting point, it follows from Section 2(1)(d) of the Corporation Tax Act that withholding tax on interest must be waived where there is an obligation under a double taxation convention or the Interest/Royalty Directive 2003/49/EC either to waive or to reduce withholding tax. When the exemption applies thus depends directly on an interpretation of the Double Taxation Convention and/or the Interest/Royalty Directive.

Under Section 65D of the Withholding Tax Act, 30% of the total interest must be withheld in respect of any payment or credit of interest to a company subject to tax under Section 2(1)(d) of the Corporation Tax Act. As from 1 April 2008, the rate has been changed to 25 %. The deduction is made by the person on whose behalf the payment or credit is made.

The tax liability pursuant to Article 2(1)(d) is definitively discharged by the deduction of interest tax pursuant to Article 65d of the Withholding Tax Act, cf. Article 2(2)(3) of the Corporation Tax Act.

Pursuant to Section 69 of the Withholding Tax Act, liability for withholding tax not withheld arises unless the company proves that there has been no negligence on its part.

7.1.1. SKAT's assessment in the present case

SKAT is of the opinion that the conditions for a limited tax liability to Denmark on the interest in question pursuant to Section 2(1)(d) of the Corporation Tax Act are met. SKAT is also of the opinion that this taxation should not be waived pursuant to the double taxation agreement between Denmark and Luxembourg, cf.

In relation to the latter, reference is made to the following two paragraphs below for the detailed justification thereof.

As mentioned above, the provisions on the "supervisory authority" are contained in Section 3B of the Tax Control Act.

It was not until 27 April 2006 that the shares in Nordic Telephone Company Investment ApS were held by Angel Lux Common S.à.r.l., and thus by a shareholder who held more than 50 % of the shares and thus the controlling influence. Therefore, the decisive influence will only come into effect on 27 April 2006.

As mentioned above, Article 2(2)(3) of the Ligningsgesetz was adopted and entered into force on 21 April 2006, with effect from 1 May 2006, thereby extending the circle of parties who may have the controlling influence to include shares and voting rights held by other shareholders with whom the shareholder has an agreement on the exercise of joint controlling influence.

In relation to Nordic Telephone Company Investment ApS, all foundations and foundation-owned companies as well as banks which are shareholders of Angel Lux Parent S.à.r.l., and thus indirect owners of Nordic Telephone Company Investment ApS, will be covered by the extended "decisive influence" provision.

However, it is a condition, as described in Section 2(2)(3) of the Danish Income Tax Act, that the shareholder has an agreement on the exercise of joint decisive influence.

The "Second Amended and Restated Subscription and Shareholders Agreement" of 27 April 2006 describes the exercise of joint control with regard to, inter alia, the ownership of PECs, cf. inter alia "Article VII, Transfers, 7.7 Certain Transferees to Become Parties", which is why SKAT considers all the shareholders of Angel Lux Parent S.à.r.l. to be covered by the provisions of Article 2(2)(3) of the Tax Act.

Consequently, pursuant to Section 2(1)(d) of the Corporation Tax Act, it is permissible to tax interest (limited tax liability) of foreign companies, foundations and associations, etc. from sources in Denmark when the debt is controlled, cf. Section 3B of the Tax Control Act.

SKAT considers that the conditions for the application of the special exemptions in Section 2(1)(d), third sentence of the Corporation Tax Act are not met.

SKAT therefore considers the interest to be subject to limited tax liability pursuant to Section 2(1)(d)(1) of the Corporation Tax Act.

The company has not withheld the interest tax.

SKAT is of the opinion that the company is liable for the non-withheld interest tax pursuant to Section 69 of the Withholding Tax Act, as the company has acted negligently by not withholding the withholding tax.

It is noted in this context that the application of the concept of beneficial owner in the DTA and the Interest and Royalty Directive is a safeguard against abuse of the DTA and the Interest and Royalty Directive, respectively, and that SKAT is of the opinion that, in relation to the assessment of negligence under Section 69 of the Withholding Tax Act, there must be a higher standard of care in relation to compliance with a safeguard rule and the payment of interest to a related party.

The Second Amended and Restated Subscription and Shareholders Agreement of 27 April 2006 provides that Angel Lux Parent S.à.r.l., Angel Lux Common S.à.r.l., Nordic Telephone Company Investment ApS, Nordic Telephone Company ApS and the five intermediate companies in Luxembourg shall all register as limited liability companies under U.S. law [note deleted] and that all shareholders and PEC owners shall also comply with U.S. law in this respect, see "Article XI, Additional covenants and agreements, 11.1 Certain Tax Matters".

The same section also states that PECs will not be considered debt, but rather equity under U.S. law.

The section "Article XII Miscellaneous, 12.3 Notices" of the "Second Amended and Restated Subscription and Shareholders Agreement" of 27 April 2006 states that the Agreement and related matters are to be governed by US law - unless it is necessary to govern individual matters by Luxembourg or Danish law.

From the Second Amended and Restated Subscription and Shareholders Agreement of 27 April 2006, it appears that the Company, by seeking to secure benefits to which neither the Interest and Royalty Directive nor the Danish-Luxembourg Double Taxation Convention provides access, and by having knowingly participated in an arrangement without any business justification, has assumed a risk.

SKAT considers it irrelevant whether, in the period from 1 May 2006 to 10 July 2008, a genuine transfer of the interest paid was made or the interest was credited daily to the debt. Article 65 D of the Withholding Tax Act stipulates that interest tax must be withheld in connection with any payment or credit of interest.

The issue of payment versus credit is dealt with in the tax guide S.A.2.7 and it makes no difference for tax purposes whether or not there is a physical transfer of funds.

The company is therefore liable for the interest tax not withheld for the period after 1 May 2006.

7.1.2. For the period up to 1 May 2006

SKAT considers the Luxembourg companies, Angel Lux Common S.à.r.l. and Angel Lux Parent S.à.r.l., to be affiliated to the group, but not the capital funds and their companies and the banks under the current rules, and therefore no withholding tax can be withheld.

7.2. OECD Model Convention and the Danish-Luxembourg Double Taxation Convention

According to the wording of Article 2(1)(d)(2) of the Corporation Tax Act, the principle of limited tax liability for interest is derogated from in cases where the tax is to be waived or reduced pursuant to a double taxation convention or the Interest/Royalty Directive.

The Double Taxation Convention of 17 November 1980 between Denmark and Luxembourg, cf. Order No 95 of 23 September 1982, provides that interest arising in one Contracting State and paid to a company resident in another Contracting State may be taxed in that other State only if that company is the 'beneficial owner' of the interest, cf.

The starting point of the DTC is therefore that it is not possible to consider interest paid to a parent company in Luxembourg as subject to the limited tax liability under Article 2(1)(d) of the Corporate Tax Code, since withholding tax is excluded.

However, as shown above, according to the wording of the DTC, the cut-off of Denmark's right to tax interest as a source State is conditional on the recipient of the interest being the 'beneficial owner'.

The term "beneficial owner" has been used in the OECD Model Convention and its commentaries since the revision of the Model Convention in 1977. The comments in the commentaries on the term "beneficial owner" have been gradually clarified, but there is no basis for arguing that this has materially changed the understanding of the term.

In the commentaries to the Model Convention, the question of the understanding of the term "beneficial owner" is now addressed in particular in paragraphs 12, 12.1 and 12.2, of Article 10, which state (with the emphasis added here)

" "12. The requirement of beneficial ownership was inserted in Article 10(2) in order to clarify

the meaning of the words 'paid... to a person who is a resident", as used in paragraph 1 of the Article. This makes it clear that the source State is not obliged to renounce its right to tax income from dividends simply because the income was paid directly to a resident of a State with which the source State has concluded a convention. The term "beneficial owner" is not used in a narrow technical sense, but must be read in context and in the light of the object and purpose of the Convention, including the avoidance of double taxation and the prevention of tax evasion and avoidance.

12.1 Where income is paid to a resident of a Contracting State who is acting in his capacity as agent or intermediary, it would not be consistent with the object and purpose of the Agreement for the source State to grant relief or exemption solely on the basis of the status of the immediate recipient of the income as a resident of the other Contracting State. The immediate recipient of income in this situation is a resident of the other State, but no double taxation arises as a result, since the recipient of income is not considered to be the owner of the income for tax purposes in the State in which he is resident. It would also be inconsistent with the object and purpose of the Convention for the source State to grant relief or exemption from tax in cases where a resident of a Contracting State, other than as an agent or intermediary, merely acts as a conduit for another person who is the actual recipient of the income in question. For these reasons, the report of the Committee on Fiscal Affairs "Double Taxation Conventions and the Use of Conduit Companies" concludes that a "conduit company" cannot normally be considered the beneficial owner if, although it is the formal owner, it in fact has very narrow powers which, in relation to the income in question, make it a "nullity" or trustee acting on behalf of other parties.

12.2 Subject to the other conditions of the Article, the limitation on the taxing rights of the source State continues to exist where an agent or intermediary, resident in a Contracting State or in a third State, is interposed between the beneficiary and the payer, unless the beneficial owner is resident in the other Contracting State. (The model text was amended in 1995 to clarify this point, which is consistent with the views of all Member States). States wishing to make this clearer are free to do so in bilateral negotiations."

In relation to the interpretation of the concepts of beneficial owner and pass-through entities, SKAT further refers to the then Minister of Taxation Kristian Jensen's answer to the Tax Committee of the Parliament on question 2 concerning L-30 - Draft Act on the conclusion of a Protocol amending the Double Taxation Convention between Denmark and the United States of America. The question was asked why Denmark had not entered a reservation against the use of pass-through entities, as had the United States. The reply states that a country should not enter a reservation that it will apply rules or interpretations mentioned in the OECD Model Notes.

...

7.2.1. SKAT's assessment in the present case

It follows from the Model Convention, its commentaries and international case law that the decisive factor in determining whether the beneficial owner is the "rightful owner" is the extent to which the beneficial owner has had the power to dispose of the amount credited/received and has been able to benefit from it.

Thus, where the real power of the beneficial owner to decide how to dispose of the imputed/received amount is very limited or non-existent, the possibility of invoking the DTC may be foreclosed.

This implies that an amount of interest which the underlying owner(s) have decided in advance to direct where they wish, without the intermediate companies being given any real possibility to dispose of it in a way other than that determined by the owners, does not have the intermediate companies as "legal owners".

SKAT is of the opinion that the two Luxembourg companies, Angel Lux Common S.à.r.l. and Angel Lux Parent S.à.r.l., have no independent right to dispose of the interest and are therefore not the legal owners.

SKAT is therefore of the opinion that neither of the two intermediate companies in Luxembourg, Angel Lux Common S.à.r.l. and Angel Lux Parent S.à.r.l., can be considered beneficial owners in relation to the intra-group interest payments, in accordance with Article 11(1) of the Double Taxation Convention.

The two companies in Luxembourg, on the other hand, are considered to act as flow-through entities for the capital funds and banks, which are mainly resident in countries without a double taxation convention with Denmark, and thus not entitled to benefit from the advantages resulting therefrom.

Interest thus flows from the Danish part of the group through the companies in Luxembourg and on to the capital funds and banks.

In SKAT's view, the fact that 0.03125% (the difference between 10% interest in Denmark and 9.96875% interest in Luxembourg) has been deposited in the interest margin of the lower of the two group companies in Luxembourg, Angel Lux Common S.à.r.l., cannot be considered decisive. The fact that, by virtue of the predetermined interest rates, a decision was taken to "leave" a small amount in Luxembourg which was not used for commercial activities or the like does not therefore mean that Angel Lux Common S.à.r.l. had any real discretion as to how to deal with interest accrued/received.

It is also noted that there does not appear to be any commercial purpose for the incorporation of the two Luxembourg holding companies, which do not appear to have any purpose other than to seek to avoid Danish withholding tax (or to obtain other tax advantages).

SKAT is of the opinion that the present case constitutes an abuse of the double taxation agreement between Denmark and Luxembourg.

Refusal to allow the group to benefit from the advantages of the double taxation agreement is thus, in SKAT's view, not contrary to the overall objective of the agreement to avoid double taxation.

If SKAT were to accept that the Luxembourg companies should be covered by the double taxation agreement with Luxembourg and thus benefit from the exemption in Article 2(1)(d) of the Corporation Tax Act, this would constitute the granting of an unlawful advantage.

SKAT therefore considers the interest payment/allocation to be subject to tax under Article 2(1)(d) of the Corporation Tax Act.

7.3. Relationship with EU law

The introductory remarks to the Interest/Royalties Directive 2003/49/EC state, inter alia, the following (with SKAT's emphasis):

(1) In an internal market having the character of a domestic market, transactions between companies of different Member States should not be subject to less favourable tax treatment than that applicable to the same transactions between companies of the same Member State.

(2) This requirement is not currently met in respect of interest and royalty payments; national tax laws, possibly combined with bilateral or multilateral conventions, may not always ensure the elimination of double taxation and the application of tax rules often results in burdensome administrative formalities and liquidity problems for the companies concerned.

(3) It is necessary to ensure that interest and royalties are taxed only once in a Member State.

(4) The most appropriate way of eliminating the aforementioned formalities and problems, while ensuring equality of tax treatment for national and cross-border transactions, is to abolish the taxation of interest and royalties in the Member State where they arise, whether by deduction at source or by assessment; it is particularly necessary to abolish such taxes in respect of payments between associated companies of different Member States and between permanent establishments of such companies.

(5) The scheme should apply only to any interest or royalties which would have been agreed between the payer and the beneficial owner in the absence of a special relationship

(6) Member States should not be prevented from taking appropriate measures to combat fraud and abuse.

...

(10) Since the objective of this Directive, namely the establishment of a common system of taxation applicable to interest and royalty payments made between associated companies of different Member States, cannot be sufficiently achieved by the Member States and can therefore be better achieved at Community level, the Community may adopt measures, in accordance with the principle of subsidiarity as set out in Article 5 of the Treaty.

The purpose of the Directive is thus to ensure that interest paid across frontiers between Member States is treated in the same way as interest paid within frontiers of individual Member States, but that this regime applies only to any interest which would be agreed in the absence of a special relationship. In addition, the aim is to ensure that interest is taxed in one Member State and to combat abuse and fraud.

The concept of beneficial owner is therefore already mentioned in the introductory remarks. The concept is also set out in Article 1, which reads as follows

For this reason alone, there is no doubt that Community law does not prevent interest from being taxed at source in Denmark in cases where the beneficial owner is not resident in the EU.

Moreover, Article 5 of the Directive allows Member States to deny taxpayers the benefits of the Directive in situations of fraud and abuse. Article 5 reads as follows...

The use of the concept of "beneficial owner" in double taxation conventions serves precisely to combat fraud or abuse. Article 5 thus does not prevent the imposition of withholding tax where the beneficial owner is not covered by a double taxation convention with Denmark.

The fact that withholding tax is levied on interest when it is paid to a non-resident company does not constitute a restriction on freedom of movement simply because there is no tax discrimination.

...

Furthermore, SKAT is of the opinion that the case law of the Court of Justice shows that there is nothing to prevent companies established in another Member State from relying on EU law - including the harmonised rules arising from, inter alia, the Directive - when it must be assumed that the establishment of a holding company in another Member State "is aimed at avoiding withholding tax on payments to non-European entities if such a construction serves no commercial purpose", see Commission interpretation of "Purely artificial arrangements" published in EUR-Lex52007DC0785.

The clear wording of Article 2(1)(d) of the Danish Corporation Tax Act implies that Denmark shall not exempt from withholding tax unless, according to the interest

/royalties Directive.

From the case law of the European Court of Justice on the concept of abuse, reference can be made to the Cadbury Schweppes judgment (Case C-196/04 Cadbury Schweppes [2006] ECR I-7995), the Halifax judgment (Case C-255/02 Halifax [2006] ECR I-1609) and the Part Service judgment (Case C-425/06 Part Service Srl).

In the Cadbury-Schweppes judgment, the Court of Justice stated in relation to the English CFC rules, inter alia:

"... for a restriction on the freedom of establishment to be justified by the need to combat abuse, the specific purpose of such a restriction must be to prevent conduct consisting in the creation of purely artificial arrangements, not based on any economic reality, in order to avoid the tax normally due on profits accruing from activities carried on in the national territory."

The Halifax VAT judgment concerns pass-through companies, in that the case concerned a VAT-exempt bank with a 5% VAT deduction which passed its relevant transactions through a fully VAT-registered subsidiary in order to obtain a full VAT deduction.

The 2010 VAT Guide, section C.4. states the following on the judgment and its significance in the subsequent Part Service Srl case:

"Benefits deriving from the provisions of the VAT legislation, including the rules on deduction, cannot be claimed when the transactions, etc., justifying this right constitute an abuse.

- It follows from the case-law of the Court of Justice of the European Communities, see Case C-255/02 Halifax plc, paragraphs 74 and 75, that a finding of abuse requires the following conditions to be met:

- the transactions in question, even if the conditions laid down by the relevant provisions were formally complied with, would involve the grant of a tax advantage which would be contrary to the purpose of those provisions

It must also be apparent from a set of objective circumstances that the main purpose of the transactions in question is to obtain a tax advantage.

The fact that the main and not the sole purpose of the transaction is to obtain a tax advantage was held by the Court of Justice in the subsequent judgment in Case C-425/06 (Part Service Srl.) to be sufficient for a finding of abuse.

In assessing the main purpose, the purely artificial nature of the transactions, together with the legal, financial and/or personal links between the operators taking part in the tax relief scheme, may be taken into account, see Halifax, paragraph 81.

In assessing the main purpose of the establishment, the Court of Justice has paid particular attention to whether there is substance in the company's country of domicile or whether there is a purely artificial arrangement, which involves not only formal establishment but also the actual pursuit of economic activity.

SKAT is therefore of the opinion that EU law cannot be considered to prevent Denmark from implementing a source state taxation of interest to a greater extent than the double taxation conventions based on the Model Convention, on the basis that the beneficial owners of the amounts in question are resident outside the EU.

7.3.1. SKAT's assessment in the present case

In order to benefit from the advantages of the Directive, it is a condition that the companies in Luxembourg can be considered as the beneficial owners of the interest earned by the Danish group companies. SKAT considers that this condition is not met. Reference is made to the previous paragraphs.

Furthermore, SKAT refers in the present case to the abuse provision in Article 5 of the Directive, which may also lead to the denial of the benefits of the Directive.

SKAT draws attention to the order of the Tax tribunal of 3 March 2010, published as SKM2010.268 LSR, in which the Tax tribunal stated that Danish law does not provide a legal basis for denying a company the benefits arising from the Parent/Subsidiary Directive when the company is the proper recipient of the dividend and when the dispositions made cannot be set aside on the basis of considerations of reality.

The Parent/Subsidiary Directive does not contain, in a similar way to the Interest/Royalty Directive, an explicit condition that only the beneficial owner may rely on the non-withholding provision of the Directive, but the Directive contains in Article 1(2) a provision similar to Article 5 of the Interest/Royalty Directive.

In so far as Article 5 of the Interest and Royalty Directive is to be regarded as relevant, SKAT does not agree, as is clear from the above, that there can be a legal basis for denying the benefits of the Directive solely on the basis of the case-law of the courts concerning the proper recipient of income or on the basis of considerations of reality. On the contrary, as stated above, SKAT is of the opinion that there is a legal basis for denying the benefits of the Directive both on the basis of the abuse provision in Article 5 of the Directive and on the basis of the case law on the general concept of abuse under EU law.

It should be noted in this respect that, in its order of 3 March 2010, the Tax tribunal also specifically considered that SKAT had not demonstrated that the Luxembourg company at issue was not the legal owner of the amount of dividends in question. In SKAT's view, the facts which led the Tax Court to make this assessment are not comparable to the facts in the present case.

It is also noted that a final decision on the appeal against the Tax tribunal's order of 3 March 2010 has not yet been taken.

SKAT considers the Luxembourg companies to be intermediary depositors who do not themselves benefit financially from the interest payments.

SKAT therefore considers that it would be contrary to the purpose of the Interest/Royalty Directive to allow the group to benefit from the Directive.

7.4. Comments from the company

SKAT received a letter dated 20 April 2010 from Nordic Telephone Company Investment ApS stating the following:

As also stated during our previous discussions, it is our opinion that there is no evidence that NTC Investment ApS has been negligent in not withholding interest tax, cf. in this respect Section 69 of the Withholding Tax Act: 'Any person who fails to fulfil his obligation to withhold tax or who withholds tax in an insufficient amount shall be directly liable to the public authorities for

payment of the amount due, unless he proves that he was not negligent in complying with the provisions of this Act.

According to the practice, it is for SKAT to prove that NTC Investment ApS has been negligent. So far, SKAT has not provided any evidence to support this, while we have carried out a number of investigations - as also stated, among other things, at the meeting on 21 January 2010 - which confirm that there was no basis for assuming that interest tax had been withheld in connection with the interest additions/payments, and thus that there was any negligence:

- Inspection: we visited the parent company Angel Lux Common in Luxembourg, met the employees, saw the premises, furniture and facilities and saw where the Board of Directors holds its meetings.

- Meetings: in addition to meeting the staff, as mentioned, we met two of Angel Lux Common's three independent directors at a meeting this year in Luxembourg, who explained the work of the board.

- Company law examination: Angel Lux Common is a company located in the EU, and is resident in Luxembourg for company law and tax purposes.

- Comparison with Danish companies: Angel Lux Common is a "S.A.R.L." which is similar to a Danish share/part company, which qualifies as an independent tax entity from a Danish point of view.

- In relation to the nature of the claim: PECs qualify as claims. Angel Lux Common. is the owner of the PECs and the creditor of the claim. A claim owner is the proper income recipient for the interest paid under the claim.

- Study of EU law and DBO: The Interest/Royalties Directive and the Double Taxation Convention with Luxembourg apply and, taken together, lead to no withholding tax being withheld.

- Danish literature and guides examined: SKAT's own withholding tax guide does not mention a withholding tax issue between a Danish company and an EU company, nor does any other literature mention that there should be a withholding tax issue, see for example the guide to form No 06.26 and the equalisation guide S.A.2.7.

NTC Investment has carried out a number of investigations which confirm that there was no basis for assuming that interest tax had been withheld in connection with the interest additions/payments and can therefore not be said to have been negligent.

In addition, a recent decision of the National Tax Court, SKM2010.268.LSR, has been published, which rejects SKAT's claim that withholding is required.

This is supported by the Tax Council in SKM2010.240.SR.

7.5. SKAT's comments on the company's observations

SKAT has reviewed the company's comments on the issue of negligence. SKAT is of the opinion that the company has been negligent as described above, since it is clear from the shareholder agreements, which form part of the entire complex of agreements, that it must be proven that the structure does not generate withholding tax. This fact was known to all the members of the group, and the negligence aspect is therefore rejected.

8. SKAT's preliminary ruling

In the light of the above, SKAT is of the opinion that interest withholding tax should be withheld from the interest credited/payable in Nordic Telephone Company Investment ApS to Angel Lux Common S.à.r.l. during the period from 1 May 2006 to 10 July 2008.

However, this does not apply to the share of the interest that ends up with the ultimate PEC owners resident in a DBO country.

The tax consequences for Nordic Telephone Company Investment ApS for the income years 2006 - 2008 are therefore as follows:

Income year Interest for the whole year Of which withholding tax for interest for the period

1.5.-31.12.2006 Of which withholding tax for interest for the period

1.1.-31.3.2008 Of which interest withholding obligation for the period 1.4.-31.3.2008

10.7.2008 Interest tax rate Interest tax

2006

1.329.208.093

922.794.206

30 %

276.838.262

2007 1.410.657.397 30 % 423.197.219

2008 824.768.741 390.745.904 30 % 117.223.771

434.022.837 25 % 108.505.709

Total 925,764,961

If the company subsequently provides documentation showing that there are individual residents of countries with a double taxation agreement with Denmark among the capital funds and banks, SKAT will make corrections to the basis for the calculation of the above.

Similarly, corrections to the basis will be made if SKAT makes changes to the interest rate for PECs."

It further appears from SKAT's decision of 18 March 2011 that in November 2010 the company complained about SKAT's provisional decision of 28 April 2010 and provided further details on the case, but that this did not give SKAT cause to change the provisional decision. In conclusion, the decision of 18 March 2011 reads as follows:

"11. SKAT's requirements for documentation of underlying investors to waive or reduce the tax claim

On 17 March 2011, SKAT wrote the following in an e-mail to the company's representatives:

Since the sending of the aft letter regarding the withholding of interest withholding tax, it is known that a large number of meetings have been held between the company (for convenience referred to as TDC hereinafter) and SKAT regarding both this aft letter and the other aft letters that had been sent at the same time.

During these meetings, the possibility of obtaining a reduction and/or a settlement of the tax claims in question was discussed.

With regard to the interest withholding tax, TDC briefly raised the question at a meeting on 18 August 2010 of what requirements SKAT would impose with regard to evidence of underlying investors in order to waive or reduce the tax claim.

The issue was raised again at the following meeting on 18 November 2010, at which TDC indicated that it did not have its investigation of the underlying owners ready, and the meeting was concluded (in relation to the issue of the interest withholding tax) with an enquiry from the company as to whether there was any possibility of reconciliation. In order to assess this possibility, the company requested a postponement of the limitation period so that it could obtain information on the backing owners and allow SKAT to review the material on the backing owners.

At the following meeting on 6 January 2011, only the interest withholding tax was discussed and a folder was presented by TDC allegedly containing a list of the underlying owners - a list which SKAT was not given the opportunity to see. SKAT stated that it was up to the company to provide documentation concerning the underlying owners and that SKAT's ability to deal with the issue accurately at a theoretical level was limited when it did not have knowledge of the underlying ownership structures. However, the additional requirements for a possible waiver or reduction of the withholding tax were explained.

On the issue of withholding tax, TDC subsequently stated at a meeting on 4 February 2011 that it did not consider it likely that a satisfactory outcome could be achieved from the perspective of the private equity funds and that it was therefore not in favour of giving SKAT access to the information on the underlying owners.

The issue was last discussed at a meeting on Monday, 14 March 2011, where TDC requested a written explanation of the requirements that SKAT would impose in order to waive or reduce the withholding tax.

In principle, SKAT is of the opinion that TDC has received all the information on SKAT's position on the issue that SKAT is able to provide, as long as TDC will not provide any information at all on the underlying ownership structures. Such information is simply necessary for SKAT to be able to assess more concretely what requirements SKAT may impose in order to waive or reduce the withholding tax.

Due to the risk of prescription, SKAT will decide on the case by tomorrow, 18 March 2011, as TDC has indicated that it will not suspend the prescription further. However, as TDC, v. Christer Bell, indicated yesterday by telephone that - despite not wishing to attempt to comply with SKAT's requirements - it would like a written explanation of the requirements that SKAT will impose in order to waive or reduce the withholding tax, SKAT must provide the following information:

It is SKAT's view that the interest has flowed through the holding companies in Luxembourg and that these companies cannot invoke either the DBO or EU law (interest/royalty directive) because they are not the beneficial owners of the interest.

SKAT has no knowledge of the underlying ownership structures, but it is SKAT's view that to the extent that the flow-through has occurred to companies resident in a DBO or EU country, a reduction (possibly a waiver) of withholding tax may be required.

SKAT bases this assessment on the fact that the requirement that the formal recipient of the interest is the beneficial owner of the interest is intended to prevent tax avoidance and abuse. However, an abuse of the DBO/EU right will not occur if the interest flows directly to a company in a DBO or EU country and is considered there as taxable for the underlying owner.

Such a pass-through would - at least in principle - require that the underlying (beneficial) owner has received an amount that is

1) identical in amount to the amount passed on in the first instance,

2) has the same character as the amount paid from Denmark, i.e. the amount must not have changed character so that it is not subject to taxation in the country of residence under the same rules as it would have been if the amount had been paid directly from Denmark to the (beneficial) owner concerned,

3) the amount must have been received and taxed in the same income period as if it had been paid directly from Denmark to the underlying (beneficial) owner.

If the interest flows to a transparent entity, this raises specific issues:

If the entity is considered transparent under both Danish law and the law of the country of domicile, this could argue in isolation for considering the next link in the ownership chain as the beneficial owner of the interest. If the country of domicile of the next owner also considers the entity to be transparent, it may be possible to obtain a reduction of the withholding tax by invoking a DBO (or possibly EU law) concluded between the country of domicile of the next owner and Denmark (provided, of course, that the next owner can be considered the beneficial owner, which may require an examination of whether the flow has actually stopped at that level).

However, if the country of domicile of the next owner does not consider the entity to be transparent, the next owner would not be able to rely on any DBO/EU right. This is because in that case, the next tier of owners has not been considered for tax purposes (in its home country) as the recipient of the interest and therefore will not be a person who can rely on the DBO, see paragraph 6.5 of the commentary on Article 1 of the Model Convention, see also paragraphs 54, 65 and 69-70 of "The Application of the OECD Model Tax Convention to Partnerships".

Finally, even if the country of domicile of the next owner considers in principle the entity as transparent, there may be cases where the next owner cannot rely on a DBO, namely if the rules of the country of domicile allow to choose to consider the entity as non-transparent, see as an example the case cited in TfS2003.167.LSR where the DBO between Denmark and the USA did not apply as the USA did not consider an (otherwise transparent) entity as transparent due to an application of the check-the-box rules.

It should be stressed that, in the absence of any information on the underlying ownership structures etc., SKAT has no way of knowing to what extent these conditions are met, nor can SKAT exclude that, in the event of a closer examination of the issue, additional circumstances may arise which need to be taken into account in the assessment.

On the present basis - where TDC has refused to provide any information on the underlying ownership structures

- it is also not possible for SKAT to assess precisely how TDC should, if at all, prove that the conditions for waiving/reducing the withholding tax are met. However, if TDC wishes to try to demonstrate that the conditions are met, SKAT would of course be willing to discuss these documentation requirements.

However, SKAT understands that it is TDC's own view that the requirements set out by SKAT are not met, and the question of the scope of the documentation requirements is therefore also of only theoretical interest.

As mentioned above, SKAT will decide on the case by 18 March 2011, as TDC has indicated that it will not suspend the limitation period further. If comments to this e-mail are received by 12 noon on 18 March, SKAT will try to take them into account in the decision as far as possible.

SKAT emphasises that the short deadline for comments must be seen in the light of the risk of limitation and the fact that this is an issue that has been discussed on several occasions, so that TDC is aware of SKAT's views and only indicated at the meeting on Monday that it wanted a written explanation from SKAT.

11.1 SKAT's comments on the company's comments of 18 March 2011 on documentation requirements for underlying investors

On 18 March 2001, the Company submitted comments on the above e-mail from SKAT. The company's comments are set out under point '9.8. Comments on SKAT's requirements for documentation for underlying investors in order to waive or reduce the tax claim'.

SKAT may attach the following comments to the e-mail received from the Company's representative:

- SKAT has not granted a reduction of interest tax if the underlying companies were resident in a DBO country.

SKAT has, however, stated orally and in writing that if the company subsequently provides documentation showing that there are individual residents of countries with a double taxation agreement with Denmark among the capital funds and banks, SKAT may make corrections to the basis for the calculation of the above.

SKAT cannot waive withholding tax in advance on an abstract basis, which is why additional documentation on the underlying owners has always been necessary.

- SKAT does not consider it correct, as stated by the company's representative, that NTC S.A. has offered SKAT these statements for review and so that SKAT can verify the investors' resident status by random checks.

On the contrary, the representative has refused at several meetings to hand over any material in its possession.

- Furthermore, SKAT does not consider that it is correct, as stated by the company's representative, that additional demands were expressed in the e-mail of 17 March 2011 in relation to the verbal demands expressed in the course of the meetings that have taken place since 6 January 2011.

- In conclusion, SKAT does not agree, as stated by the Company, that additional requirements cannot be made under the Commentary to the OECD Model Tax Convention as well as under EU law.

If an underlying company in a DBO country (or a Member State of the EU) is not considered for tax purposes to be the recipient of the interest in its home country, SKAT is of the opinion that the company cannot be considered to be a beneficial owner of the interest that can claim protection from withholding tax under the DBO and/or EU law. That the company cannot rely on the DBO follows inter alia from paragraph 6.5 of the commentary to Article 1 of the Model Tax Convention, see also paragraphs 54, 65 and 69-70 of The Application of the OECD Model Tax Convention to Partnerships.

SKAT's view is not considered to be in conflict with the OECD Model Convention as well as EU law.

The overall conclusion is therefore that the assessment is upheld."

On 5 October 2015, SKAT decided that a total of DKK 108,526,049 in interest tax should be refunded for the tax years in question. The adjustment was due to the fact that, in the decision of

18 March 2011, but that the interest rate should be lower, corresponding to the interest rate applicable to the taxation of interest income of Danish companies. The total claim for withholding tax then amounted to DKK 817 238 912.

Additional information on the group and the loans

As at 29 April 2006, the group structure was as follows (Annex 5 to SKAT's decision):

The company Nordic Telephone Management Holding ApS was then founded on 20 December 2006 and became a shareholder in Nordic Telephone Company Investment ApS on

22 December 2006. Nordic Telephone Management Holding ApS was primarily owned by Angel Lux Common S.a.r.l. with 81,3 % and the rest by senior executives of the Danish companies.

The five companies, Angel Lux I S.a.r.l., Angel Lux II S.a.r.l., Angel Lux III S.a.r.l., Angel Lux IV S.a.r.l. and Kabler S.a.r.l., were liquidated as of 20 December 2007, so that Angel Lux Parent S.a.r.l. then owned Angel Lux Common S.a.r.l.

As at 31 December 2007 and 31 December 2008, the group structure was as follows (Annex 11 to the SKAT decision):

The companies Angel Lux Common S.à.r.l. and Angel Lux Parent S.à.r.l.

Angel Lux Common S.à.r.l. and Angel Lux Parent S.à.r.l., incorporated on 25 and 26 April 2006 respectively, are both fully taxable in Luxembourg. A letter dated 10 July 2008 from the Luxembourg tax authorities to the Danish tax authorities states, inter alia:

"...In response to your information request dated February 27th 2008, your reference 08-034555, W14612, regarding the Luxembourg companies Angel Lux Parent S.à.r.l., Angel Lux I S.à.r.l., Angel Lux II S.à.r.l., Angel Lux III S.à.r.l., Angel Lux IV S.à.r.l. Angel Lux Common S.à.r.l. and Kabler S.à.r.l, I am honoured to inform you:

"...The above mentioned companies are not covered by the law of 15 June 2004 or by any other law granting a special fiscal status. The companies are fully liable to the corporation tax (impôt sur le revenu des collectivités), the capital tax (impôt sur la fortune), the communal trade tax (impôt commercial communal)..."

In the period from 2006 to 2008, Angel Lux Common S.à.r.l. had operating expenses (excluding interest expenses) of approximately 220,000, 140,000 and 700,000 euro respectively, while Angel Lux Parent S.à.r.l. had operating expenses (excluding interest expenses) of approximately 130,000, 290,000 and 2,140,000 euro respectively. The expenses in question concerned, inter alia, salaries, rent, office expenses, expenses for external consultants, etc., as indicated in point 5 of the SKAT decision.

It appears from Angel Lux Common S.à.r.l.'s annual accounts for 2007 and 2008 that the company employed on average two people part-time during the years. It appears from the annual accounts of Angel Lux Parent S.à.r.l. for 2007 and 2008 that the company employed on average one person part-time during the years. No specifications of the companies' costs for 2007-2009 are available.

Angel Lux Common S.á.r.l.'s only asset, apart from the shares in Nordic Telephone Company Investment ApS, was the receivable under PECs issued by the same company.

The consortium agreements submitted

An agreement dated 24 August 2005 entitled 'Project Angel - Consortium Heads of Terms' sets out the five private equity funds, Apax Partners Worldwide LLP ('Apax'), The Blackstone Group International Limited ('Blackstone'), Permira Advisers KB ('Permira'), Providence Equity Partners Limited ('Providence') and Kohlberg Kravis Roberts & Co. Limited ("KKR"), as consortium members. On governance, the agreement states, inter alia:

"All significant decisions relating to the conduct of the transaction and, if the proposed transaction is consummated, relating to the business of the acqui-

tion vehicles (collectively, "InvestCo") and the acquired group ("Angel") (i.e., decisions of a type customarily made by a board of directors or the shareholders/equity owners) will require the affirmative approval of at least 3 out of 5 of the Parties..."

The supplementary agreement of 16 November 2005 between the same five private equity funds, referred to as the "Subscription and Shareholders Agreement", states, inter alia, with regard to the "Investment Structure":

"In the event of any transaction that would trigger withholding taxes on any distribution to an Investor, each Investor will use its best efforts to structure any such transaction and/or amend the investment structure as may be reasonably advisable to avoid any such withholding taxes..."

The same agreement states on "Governance", inter alia:

"Each Investor will appoint one Danish Topco director and one Angel director (and, in each case, have one observer) and will appoint one representative to the Investors Committee.

Investors Committee operates on principle of approval of 3 of 5 Investors required. Matters listed on Annex A of this Term Sheet require the approval of the Investors Committee.

Certain "supermajority" matters as listed on Annex B of this Term Sheet require approval of 4 of 5 members of the Investors Committee.

An Investor loses rights to board and Investors Committee representatives when it ceases to hold over 50% of its original aggregate investment in Danish Topco shares and PECs."

The follow-up and more detailed agreement, also called "Subscription and Shareholders Agreement", dated 7 December 2005, concluded between the same five private equity funds, the five Luxembourg companies (Angel Lux I-IV and Kabler S.a.r.l.) and the Danish NTC companies, states that the five named members of "the Holdco Board" [NTC Investment ApS], are appointed by each of the five private equity funds. It is further stated, inter alia, that "The same persons will also be members of the boards of directors of each Acquisition Subsidiary."

The agreement also states:

"ARTICLE IV

CLOSING DATE ACTIONS

4.1 Board Actions. On or prior to the Closing Date, the Holdco Board shall hold a meeting to consider the approval of all documents to be executed by each member of the Group at Closing and all matters contemplated or required by such documents and this Agreement.

4.2 Subscription. Subject to the terms and conditions hereof and the Equity Commitment Letters, on or prior to the Closing Date, the following actions will be taken:

(i) Each Investor will irrevocably subscribe and pay for Shares and PECs as set forth in Exhibit B in an aggregate amount equal to its Equity Commitment in each case in accordance with Article III.

(ii) ...

(iii) Holdco and each Acquisition Subsidiary, as applicable, will transfer the amounts received pursuant to this Section 4.2. to Bidco [Nordic Telephone Company ApS] in accordance with instructions received from the Holdco Board."

Exhibit B has not been produced before the Court.

Both the agreement of 7 December 2005 and the subsequent agreement concluded on 25 January 2006 referred to as the "Amended and Restated Subscription and Shareholders Agreement" contain detailed provisions on, inter alia, "Governance" and "Transfers".

Finally, an agreement dated 27 April 2006, referred to as the "Second Amended and Restated Subscription and Shareholders Agreement", provides, inter alia, that the board of directors of the newly created companies Angel Lux Common S.a.r.l. and Angel Lux Parent S.a.r.l. should be composed of the same five named directors as mentioned in the agreement of 7 December 2005. It is further stated that "The same persons will also be members of the board of directors of each Acquisition Subsidiary."

The agreement also states:

"5.8 Investors Committee. The Investors agree that the principal governing body of their investment in the Group will be a committee of representatives of the Investors (the "Investors Committee"), to the fullest extent permitted by law, recognizing that the Investors Committee is a creation of contract and not of corporate law. The executive officers of the various members of the Group shall, in addition to their other duties, report to the Investors Committee if so requested. Each Investor shall take, and shall instruct its representative(s), nominee(s) or designee(s), as the case may be, on the Investors Committee, on each Board and any committee thereof and on the board or any similar governing body of each Subsidiary of Holdco (each, a "Subsidiary Board") to take, any and all action within its power to effectuate any decision taken by the Investors Committee in respect of any matter contemplated by this Agreement to be subject to the approval of the Investors Committee or reasonably related to the investment of the Investors in the Shares and PECs, and an Investor shall not take, and shall instruct its representative(s), nominee(s) or designee(s), as the case may be, on the Investors Committee, on each Board and on any committee thereof and on each Subsidiary Board not to take, any action that would contravene any decision taken by the Investors Committee. Each Investor agrees that, unless and until any matter that requires the prior approval of the Investors as set forth in Section 5.11 or elsewhere in this Agreement has been considered and either approved or rejected by the Investors Committee or if any other matter otherwise is considered and either approved or rejected by the Investors Committee, it shall take any and all actions to the extent such actions are within its power and control in its capacity as an investor in Holdco [Angel Lux Parent S.a.r.l. ], and shall instruct its representative(s), nominee(s) or designee(s), as the case may be, on the Investors Committee, on each Board and on any committee thereof and on each Subsidiary Board to take any and all action within the power of such Person (i) to procure that such matter shall not be placed on the agenda of any meeting of a Board or any committee thereof or any Subsidiary Board or by any shareholders and that consideration of such matter at any meeting of a Board or committee thereof or any Subsidiary Board or by any shareholders otherwise shall be delayed and (ii) in any event, to refrain from voting on such matter (whether for or against) at any such meeting.

5.9 Composition of Investors Committee.

(a) The Investors Committee shall initially consist of five members. Each of the Investors shall designate one member of the Investors Committee (each such member, an "Investor Representative"). Each Investor's Investor Representative must also be such Investor's Shareholder Director. The chairman of the Investors Committee shall be elected by the Investors Committee. Each initial Investor Representative is identified below opposite the name of the designating Investor.

Designating Investor Investor Representative

Apax ***

Blackstone ***

KKR ***

Permira ***

Providence ***

It is undisputed that the five funds are domiciled in countries outside the EU without a double taxation agreement with Denmark.

NTC Parent S.a.r.l. has submitted during the proceedings before the Regional Court lists of investors prepared by the funds as well as lists of the ultimate investors' resident status. The Ministry of Taxation has contested that these lists constitute evidence of the underlying investors.

III. Answers to questions referred by the Court of Justice

In its judgment of 26 February 2019 in Joined Cases C115/16, C-118/16, C-119/16 and C-299/16, the Court of Justice (Grand Chamber) answered a number of questions referred for a preliminary ruling by the Østre Landsret by order of 19 February 2016 in four cases, including the two cases referred to in the present judgment (Takeda Case B-2942-12 is referred to in C-118/16 and NTC Case B-171-13 is referred to in C-115/16). The judgment states, inter alia:

"On the first question, points (a) to (c), the second question, points (a) and (b), and the third question in Cases C-115/16, C-118/16, C-119/16 and C299/16

83 First, by their first question (a) to (c) in Cases C-115/16, C-118/16, C-119/16 and C-299/16, the referring courts seek to ascertain the interpretation to be given to the concept of 'beneficial owner' within the meaning of Article 1(1) and (4) of Directive 2003/49. Second, by their second questions (a) and (b) and the question referred in Cases C-115/16, C-118/16, C-119/16 and C-299/16, the referring courts seek to ascertain, in particular, whether the combating of fraud or abuse permitted by Article 5 of Directive 2003/49 presupposes the existence of a national or collective anti-abuse provision within the meaning of paragraph 1 of that article. In particular, the referring courts seek to ascertain whether a national or contractual provision containing the concept of 'beneficial owner' may be regarded as constituting a legal basis for combating fraud or abuse.

The concept of 'beneficial owner

84 It should be noted at the outset that the concept of 'beneficial owner of interest' contained in Article 1(1) of Directive 2003/49 cannot refer to concepts of national law of different scope.

85 In this respect, it has been held that the second to fourth recitals in the preamble to Directive 2003/49 state that the purpose of that directive is to abolish double taxation in respect of interest and royalties paid between associated companies of different Member States and to ensure that those payments are taxed once in a Member State, the most appropriate way of ensuring that national and transnational transactions are treated in the same way for tax purposes being to abolish the taxation of interest and royalties in the Member State in which they arise (judgment of 21 March 2003, Case C-128/03). 7.2011, Scheuten Solar Technology, C-397/09, EU:C:2011:499, paragraph 24).

86 The scope of Directive 2003/49, as defined in Article 1(1) thereof, therefore includes the exemption of interest or royalty payments arising in the source State, provided that the beneficial owner thereof is a company having its seat in another Member State or a permanent establishment situated in another Member State and belonging to a company of a Member State (judgment of 21.7.2011, Scheuten Solar Technology, C-397/09, EU:C:2011:499, paragraph 25).

87 The Court has also pointed out that, since Article 2(a) of that directive defines interest as 'income from debt-claims of every kind', only the beneficial owner may receive interest which constitutes income from such debt-claims (see, to that effect, Case C-397/09 Scheuten Solar Technology [2011] ECR 499, paragraph 27).

88 The concept of 'beneficial owner' within the meaning of that directive must therefore be interpreted as designating an entity which effectively receives the interest paid to it. Article 1(4) of the Directive reinforces this reference to economic reality by specifying that a company is to be regarded as the beneficial owner of interest or royalties in a Member State only if it receives those payments for its own use and not as an intermediary, including as an agent, nominee or authorised signatory for another person.

89 Where certain language versions of Article 1(1) of Directive 2003/49, such as the Bulgarian, French, Latvian and Romanian versions, use the term

'beneficiary' [inter alia: equivalent in French to 'bénéficiaire'], the other language versions, as is apparent from paragraph 10 of this judgment, use expressions such as 'the beneficial owner' [inter alia: equivalent in French to 'bénéficiaire effectif'] (the Spanish, Czech, Estonian, English, Italian, Lithuanian, Maltese, Portuguese and Finnish language versions), 'the beneficial owner'/'the person having the right of use' [inter alia: equivalent in French to 'bénéficiaire effectif'], 'the beneficiary' [inter alia: equivalent in French to 'bénéficiaire effectif'] and 'the person having the right of use' [inter alia: equivalent in French to 'bénéficiaire effectif']. (a.o.: equivalent in French to "propriétaire"/"celui qui a le droit d'utiliser") (the German, Danish, Greek, Croatian, Hungarian, Polish, Slovak, Slovenian and Swedish language versions), or "the one who ultimately has the right" [a.o.: equivalent in French to "celui qui a droit en dernier lieu" (the Dutch language version). The use of these different terms shows that the term "beneficiary" does not refer to a beneficiary who is formally identified, but rather to the entity which, in economic terms, receives the interest collected and is therefore free to decide how it is to be used. In accordance with paragraph 86 of this judgment, only an entity established in the European Union may constitute the beneficial owner of interest which may benefit from the exemption provided for in Article 1(1) of Directive 2003/49.

90 Moreover, as is apparent from the proposal for a Council Directive on a common system of taxation applicable to interest and royalty payments made between associated companies of different Member States, submitted on 6 March 1998 (COM(1998) 67 final), on which Directive 2003/49 is based, the Directive is inspired by Article 11 of the 1996 OECD Model Tax Convention and pursues the same objective as that of avoiding international double taxation. The concept of 'beneficial owner', which is contained in bilateral conventions based on that Model Tax Convention, as well as the subsequent amendments to that Model Tax Convention and the commentaries thereto, are therefore relevant to the interpretation of that Directive.

91 The applicants in the main proceedings submit that an interpretation of the concept of the 'beneficial owner of ... interest or royalties' within the meaning of Article 1(1) of Directive 2003/49 in the light of the OECD Model Tax Convention and the commentaries thereto is not permissible, since such an interpretation would lack democratic legitimacy. However, that argument cannot be accepted, since such an interpretation, even if inspired by the OECD texts, is based on the Directive - as is apparent from paragraphs 85 to 90 of this judgment - which reflects, both in itself and in its legislative history, the democratic process of the European Union.

92 Thus, it is apparent from the OECD Model Tax Convention and the commentaries thereto, as reproduced in paragraphs 4-6 of this judgment, that the concept of 'beneficial owner' does not cover flow-through companies or is used in a narrow technical sense, but is used for the purposes of avoiding double taxation and preventing tax avoidance and tax evasion.

93 The bilateral conventions concluded by Member States with each other on the basis of the OECD Model Tax Convention, such as the Nordic Double Taxation Convention, also testify to this development. It must therefore be held that those conventions, reproduced in paragraphs 16 to 18 of this judgment, all contain the expression 'beneficial owner' within the meaning of that model convention.

94 It should also be pointed out that the mere fact that the company receiving interest in a Member State is not the 'beneficial owner' of the interest does not necessarily mean that the exemption provided for in Article 1(1) of Directive 2003/49 does not apply. It is therefore possible that such interest is exempt in the source State under that provision, provided that the company receiving the interest transfers the amount to a beneficial owner resident in the EU and, in addition, satisfies all the conditions laid down in Directive 2003/49 in order to benefit from such an exemption.

The question whether it is necessary for there to be a specific national or contractual provision transposing Article 5 of Directive 2003/49

95 The referring courts ask whether, in order to combat abuse of rights in the context of the application of Directive 2003/49, a Member State must have adopted a specific national provision transposing that directive or whether that Member State may refer to national or collective anti-abuse principles or provisions.

96 In this respect, it follows from settled case-law that there is a general principle of EU law that citizens may not rely on provisions of EU law in order to enable fraud or abuse (judgment of 9.3.1999, Centros, C-212/97, EU:C:1999:126, paragraph 24 and the case-law cited therein, of 21.2.2006, Halifax and Others, C-255/02, EU:C:2006:121, paragraph 68, of 12.9.2006, Cadbury Schweppes and Cadbury Schweppes Overseas, C-196/04, EU:C:2006:544, paragraph 35, of 22.11.2017, Cussens and Others, C-251/16, EU:C:2017:881, paragraph 27, and of 11.7.2018, Commission v Belgium, C356/15, EU:C:2018:555, paragraph 99).

97 It is incumbent on citizens to comply with this general principle of law. The application of Union law cannot therefore be extended to cover acts carried out with the aim of taking advantage, by fraud or abuse, of the benefits conferred by Union law (see, to that effect, Case C-321/05 Kofoed [2007] ECR 408, paragraph 38; Case Cussens and Others [2017] ECR I-0000, paragraph 38), C251/16, EU:C:2017:881, paragraph 27, and of 11.7.2018, Commission v Belgium, C-356/15, EU:C:2018:555, paragraph 99).

98 It thus follows from that principle that a Member State must refuse to grant the advantages of provisions of European Union law where those advantages have been invoked not in order to implement the objectives of those provisions but in order to benefit from an advantage under European Union law, even if the conditions for the grant of that advantage are satisfied only formally.

99 That is the case, for example, where the performance of customs formalities was not carried out in the course of ordinary trade but was purely formal and had the sole aim of benefiting unlawfully from monetary compensatory amounts (see, to that effect, the judgment of 27 October 1981 in Schumacher and Others, 250/80, EU:C:1981:246, paragraph 16, and of 3.3.1993, General Milk Products, C-8/92, EU:C:1993:82, paragraph 21) or export refunds (see, to that effect, judgment of 14.12.2000, EmslandStärke, C-110/99, EU:C:2000:695, paragraph 59).

100 The principle of the prohibition of abuse of rights also applies to areas as diverse as the free movement of goods (judgment of 10 January 1985, Association des Centres distributeurs Leclerc and Thouars Distribution, 229/83, EU:C:1985:1, paragraph 27), the freedom to provide services (judgment of 3 December 2000, Case C-127/99, EU:C:1985:1, paragraph 27) and the freedom to provide services (judgment of 3 December 2000, Case C-130/99, EU:C:1985:1, paragraph 28). 2.1993, Veronica Omroep Organisatie, C-148/91, EU:C:1993:45, paragraph 13), public service contracts (judgment of 11.12.2014, Azienda sanitaria locale n. 5 "Spezzino" and others, C-113/13, EU:C:2014:2440, paragraph 62), freedom of establishment (judgment of 9.3.1999, Centros, C-212/97, EU:C:1999:126, paragraph 24), company law (judgment of 23.3. 2000, Diamantis, C-373/97, EU:C:2000:150, paragraph 33), social security (judgments of 2.5.1996, Paletta, C-206/94, EU:C:1996:182, paragraph 24, of 6.2.2018, Altun and others, C-359/16, EU:C:2018:63, paragraph 48, and of 11.7.2018, Commission v Belgium, C-356/15, EU:C:2018:555, paragraph 99), transport (judgment of 6.4. 2006, Agip Petroli, C456/04, EU:C:2006:241, paragraphs 19-25), social policy (judgment of 28.7.2016, Kratzer, C-423/15, EU:C:2016:604, paragraph 3741), restrictive measures (judgment of 21.12.2011, Afrasiabi and others, C-72/11, EU:C:2011:874, paragraph 62) and value added tax (VAT) (judgment of 21.2.2006, Halifax and others, C-255/02, EU:C:2006:121, paragraph 74).

101 As regards the latter, the Court has repeatedly held that, although the fight against fraud, tax evasion and possible abuse is an objective recognised and supported by the Sixth Council Directive 77/388/EEC of 17 May 1977 on the harmonisation of the laws of the Member States relating to turnover taxes - Common system of value added tax: uniform basis of assessment (OJ 1977 L 145, p. 1), it is not sufficient to establish that the taxable person is liable to pay the VAT. 1), the principle of prohibition of abuse constitutes a general principle of EU law which applies irrespective of whether the rights and advantages which have been abused are based on the Treaties, a regulation or a directive (see, to that effect, judgment of 22.11.2017, Cussens and Others, C-251/16, EU:C:2017:881, paragraphs 30 and 31).

102 It follows that the general principle of prohibition of abuse must be relied on against a person where that person invokes certain rules of European Union law which provide for an advantage in a manner which is not consistent with the objectives pursued by those rules. The Court has thus held that that principle may be relied on against a taxable person in order, in particular, to deny him the right to exemption from VAT, even where there are no provisions of national law providing for such a denial (see, to that effect, judgment of 18.12.2014, Schoenimport "Italmoda" Mariano Previti and Others, C-131/13, C-163/13 and C-164/13, EU:C:2014:2455, paragraph 62, and of 22.11.2017, Cussens and Others, C-251/16, EU:C:2017:881, paragraph 33).

103 In the main proceedings, the rules which SKAT claims have been abused are those of Directive 2003/49, which was adopted with a view to promoting an internal market having the character of a domestic market and which provides, in the source State, for a tax exemption for interest paid to an associated company established in another Member State. As is apparent from the proposal for a directive referred to in paragraph 90 of this judgment, certain definitions in that directive are inspired by the definitions in Article 11 of the 1996 OECD Model Tax Convention.

104 Although Article 5(1) of Directive 2003/49 provides that that directive does not preclude the application of national or conventionally established anti-fraud or anti-abuse provisions, that provision cannot be interpreted as precluding the application of the general principle of European Union law prohibiting abuse referred to in paragraphs 96 to 98 of this judgment. The transactions alleged by SKAT to constitute abuse fall within the scope of EU law (see, to that effect, Case C-103/09 Weald Leasing [2010] ECR 804, paragraph 42) and may prove incompatible with the objective pursued by this Directive.

105 Although Article 5(2) of Directive 2003/49 provides that Member States may withdraw benefits under that directive or refuse to apply it in cases of tax avoidance, evasion or abuse, that provision cannot be interpreted as precluding the application of the EU law principle of prohibition of abuse, in so far as the application of that principle is not subject to a requirement of transposition, as is the case with the provisions of that directive (see, to that effect, judgment of 22 November 2017, Cussens and Others, C-251/16, EU:C:2017:881, paragraphs 28 and 31).

106 As stated in paragraph 85 of the present judgment, it is apparent from the second to fourth recitals in the preamble to Directive 2003/49 that that directive is intended to abolish double taxation in respect of interest and royalties paid between associated companies of different Member States and between the permanent establishments of such companies, in order, first, to avoid burdensome administrative formalities and liquidity problems for companies and, second, to ensure that national and transnational transactions are treated in the same way for tax purposes.

107 However, to allow the creation of financial arrangements for the sole purpose of benefiting from the tax advantages resulting from the application of Directive 2003/49 would not be consistent with such objectives but, on the contrary, would be detrimental both to economic cohesion and to the functioning of the internal market by distorting the conditions of competition. As the Advocate General has essentially stated in paragraph 63 of the draft decision in Case C-115/16, the same applies even if the transactions in question do not pursue exclusively such an objective, since the Court of Justice has held that the principle of the prohibition of abusive practices applies in the tax sphere where the main purpose of the transaction in question is to obtain a tax advantage (see, to that effect, Case C-425/06 Part Service [2008] ECR 108, paragraph 45, and Case Cussens and Others [2017] ECR I-57, paragraph 45), C-251/16, EU:C:2017:881, paragraph 53).

108 Moreover, the right of taxpayers to benefit from tax competition between Member States, in the absence of harmonisation of income taxes, does not preclude the application of the general principle of prohibition of abuse. In that regard, it should be noted that Directive 2003/49 is intended to harmonise direct taxation in order to enable economic operators to benefit from the internal market by eliminating double taxation and that the sixth recital in the preamble to the directive states that Member States must not be prevented from taking appropriate measures to combat fraud and abuse.

109 Although the fact that the taxable person is seeking the tax regime most favourable to him cannot in itself give rise to a general presumption of fraud or abuse (see Case C-49/01), the fact that the taxable person is not seeking the tax regime most favourable to him cannot in itself give rise to a general presumption of fraud or abuse. 2016, SECIL, C464/14, EU:C:2016:896, paragraph 60), it is nevertheless the case that such a taxpayer cannot be granted a right or benefit deriving from EU law if the transaction in question is, economically speaking, a purely artificial arrangement whose purpose is to circumvent the legislation of the Member State concerned (cf. see, to that effect, Case C-196/04 Cadbury Schweppes and Cadbury Schweppes Overseas [2006] ECR 544, paragraph 51; Case C-322/11 K [2013] ECR 716, paragraph 61; and Case Polbud

- Wykonawstwo, C-106/16, EU:C:2017:804, paragraphs 61-63).

110 It follows from those considerations that it is for the national authorities and courts to refuse to grant the advantages provided for by Directive 2003/49 where they are invoked in order to enable fraud or abuse to be committed.

111 In the light of the general principle of European Union law prohibiting abuse and the need to comply with that principle in the context of the transposition of European Union law, the absence of national or collective anti-abuse provisions has no bearing on the obligation on national authorities to refuse to grant the rights provided for by Directive 2003/49 which are invoked to enable fraud or abuse to take place.

112 The applicants in the main proceedings rely on the judgment of 5 July 2007 in Case C-321/05 Kofoed [2007] ECR 408, which concerned the grant of a tax exemption provided for in Council Directive 90/434/EEC of 23 July 1990 on the common system of taxation applicable to mergers, divisions, transfers of assets and exchanges of shares concerning companies of different Member States (OJ 1990 L 225, p. 1). 1), in order to submit that it follows from Article 5(1) of Directive 2003/49 that the Member State concerned may refuse to grant the advantages provided for in that directive only if its national legislation contains a separate and specific legal basis in that regard.

113 However, that argument cannot be accepted.

114 Admittedly, the Court observed in paragraph 42 of the judgment of 5 July 2007 in Case C-321/05 Kofoed [2007] ECR 408 that the principle of legal certainty precludes directives from creating obligations for citizens per se and that they cannot therefore be relied on as such by the Member State against citizens.

115 The Court also observed that such a finding is without prejudice to the obligation of all the authorities of a Member State, when applying national law, to interpret it as far as possible in the light of the wording and purpose of directives in order to achieve the result intended by those directives, those authorities thus being able to rely on a consistent interpretation of national law vis-à-vis citizens (see, to that effect, Case C-321/05 Kofoed [2007] ECR 408, paragraph 45 and the case-law cited therein).

116 It was on the basis of those considerations that the Court invited the national court to examine whether there was a general provision or principle in Danish law prohibiting abuse of rights or other provisions on tax fraud or tax evasion which could be interpreted in accordance with that provision of Directive 90/434, according to which a Member State may essentially refuse to grant the right of deduction provided for in that directive in the case of a transaction the main purpose of which is such fraud or evasion, and then, if appropriate, to examine whether the conditions for applying those national provisions were satisfied in the main proceedings (cf. see, to that effect, Case C-321/05 Kofoed [2007] ECR 408, paragraphs 46 and 47).

117 Even if it were to appear in the main proceedings that national law does not contain rules which may be interpreted in accordance with Article 5 of Directive 2003/49, it is possible - notwithstanding what the Court of Justice held in its judgment of 5 July 2007 in Case C-117/01 (1 ) - that the national court may not be required to interpret the national law in question in the light of Article 5 of Directive 2003/49. However, it cannot be inferred from this that the national authorities and courts are precluded from refusing to grant the benefit deriving from the right to exemption provided for in Article 1(1) of that Directive in cases of fraud or abuse of rights (see, by analogy, judgment of 18.12.2014, Schoenimport 'Italmoda' Mariano Previti and Others, C-131/13, C-163/13 and C-164/13, EU:C:2014:2455, paragraph 54).

118 A refusal invoked in such circumstances against a taxpayer cannot be attributed to the situation referred to in paragraph 114 of the present judgment, since such a refusal is consistent with the general principle of EU law that no one may invoke EU law in order to enable fraud or abuse (see, by analogy, judgment of 18.12.2014, Schoenimport "Italmoda" Mariano Previti and Others, C-131/13, C-163/13 and C164/13, EU:C:2014:2455, paragraphs 55 and 56 and the case law cited therein).

119 In so far as facts of a fraudulent or abusive nature cannot give rise to a right under the European Union legal order, as stated in paragraph 96 of the present judgment, the denial of an advantage under a directive does not impose an obligation on the citizen concerned under that directive, but is merely the consequence of a finding that the objective conditions for obtaining the advantage sought, laid down by that directive in relation to that right, are satisfied only formally (see Case C-49/03 P v Commission [2006] ECR I-1493, paragraph 1). analogous judgment of 18.12.2014, Schoenimport "Italmoda" Mariano Previti and others, C-131/13, C163/13 and C-164/13, EU:C:2014:2455, paragraph 57 and the case-law cited therein).

120 In such circumstances, Member States must therefore refuse to grant the advantage conferred by Directive 2003/49 in the present case, in accordance with the general principle of prohibition of abuse, according to which EU law cannot cover unlawful transactions by traders (see, to that effect, Case C-356/15 Commission v Belgium [2018] ECR 555, paragraph 99).

121 Having regard to the finding in paragraph 111 of the present judgment, it is unnecessary to reply to the third question referred by the national courts, which concerns, more specifically, whether a provision of a double taxation convention referring to the concept of 'beneficial owner' may constitute a legal basis for combating fraud and abuse within the framework of Directive 2003/49.

122 In the light of all those considerations, the first question, points (a) to (c), and the second question, points (a) and (b), in Cases C-115/16, C-118/16, C-119/16 and C-299/16 must be answered as follows:

- Article 1(1) of Directive 2003/49, read in conjunction with Article 1(4) of that directive, must be interpreted as meaning that the exemption from any form of tax on interest payments provided for therein is reserved solely for the beneficial owners of such interest, that is to say, the entities which, in economic terms, actually receive that interest and which therefore have the power freely to determine its use.

- The general principle of European Union law, according to which individuals may not rely on provisions of European Union law in order to enable fraud or abuse, must be interpreted as meaning that, in the event of fraud or abuse, the national authorities and courts must refuse to grant a taxable person the exemption from any form of tax on interest payments provided for in Article 1(1) of Directive 2003/49, even where there are no national or contractual provisions providing for such a refusal.

On the first question (d) to (f) in Cases C-115/16, C-118/16 and C-119/16, the first question (d) and (e) in Case C-299/16, the fourth question in Cases C-115/16 and C-118/16, the fifth question in Case C-115/16, the sixth question in Case C-118/16 and the fourth question in Cases C-119/16 and C-299/16

123 By the first question (d) to (f) in Cases C-115/16, C-118/16 and C-119/16, the first question (d) and (e) in Case C-299/16 and the fourth question in Cases C-115/16 and C-118/16, the referring courts seek to ascertain the elements constituting an abuse of rights and the manner in which those elements may be established. In that regard, they ask, in particular, whether there can be an abuse of rights where the beneficial owner of interest transferred by flow-through companies is ultimately a company established in a third State with which the Member State concerned has concluded a double taxation convention. By their fifth question in Case C-115/16, their sixth question in Case C-118/16 and their fourth questions in Cases C-119/16 and C-299/16, the referring courts seek to ascertain, in particular, whether a Member State which refuses to recognise a company of another Member State as the beneficial owner of interest is required to determine which company, if any, it considers to be the beneficial owner.

The question of what constitutes an abuse of rights and the evidence relating thereto

124 As is clear from the case-law of the Court of Justice, in order to establish the existence of an abuse, there must be, first, a concurrence of objective circumstances from which it is apparent that the objective pursued by European Union legislation has not been attained, even though the conditions laid down by that legislation have formally been complied with, and, second, a subjective element consisting in an intention to take advantage of European Union legislation by artificially creating the conditions required to attain that advantage (judgment of 14 March 2004 in Case C-126/01). 12.2000, Emsland-Stärke, C-110/99, EU:C:2000:695, paragraphs 52 and 53, and of 12.3.2014, O. and B., C-456/12, EU:C:2014:135, paragraph 58).

125 It is therefore the examination of those overlapping circumstances which makes it possible to verify the existence of the elements constituting abuse and, in particular, whether the traders concerned have engaged in purely formal or artificial transactions, devoid of any economic or commercial justification, with the principal aim of obtaining an unfair advantage (see, to that effect, Case C-653/11 Newey [2013] ECR 409, paragraphs 47-49, and Case SICES and Others [2014] ECR I-0000, paragraphs 47-49), C-155/13, EU:C:2014:145, paragraph 33, and of 14.4.2016, Cervati and Malvi, C-131/14, EU:C:2016:255, paragraph 47).

126 It is not for the Court to assess the facts of the main proceedings. However, the Court may, in the context of a reference for a preliminary ruling, provide the national courts, where appropriate, with detailed information to guide them in their assessment of the specific cases before them. Even if there is evidence in the main proceedings from which it could be concluded that there has been an abuse of rights, it is nevertheless for the referring courts to verify whether that evidence is objective and consistent and whether the applicants in the main proceedings have had the opportunity to adduce evidence to the contrary.

127 A group which is not organised for reasons reflecting economic reality, which has a structure which is purely formal and which has as its main object or as one of its main objects the obtaining of a tax advantage which is contrary to the object and purpose of the tax legislation applicable may be regarded as an artificial arrangement. This is the case in particular where the payment of interest tax is avoided by the inclusion in the group structure of a flow-through entity between the company transferring the interest and the company which is the beneficial owner of the interest.

128 There is therefore a basis for assuming that there is an arrangement designed to take unfair advantage of the exemption provided for in Article 1(1) of Directive 2006/112/EC. 1 of Directive 2003/49 where, shortly after receiving it, that interest is passed on in whole or substantially in whole by the company which received it to entities which do not satisfy the conditions for the application of Directive 2003/49, either because those entities are not resident in a Member State, because they are not constituted in one of the forms listed in the annex to that directive, or because they are not subject to one of the taxes listed in Article 3(a)(ii) of that directive. (iii) without being exempt, or because they do not have the status of an associated company within the meaning of Article 3(b) of that Directive.

129 Thus, entities whose tax domicile is outside the European Union, such as the companies referred to in Cases C-119/16 and C-299/16 or the funds referred to in Cases C-115/16 and C-299/16, do not satisfy the conditions for the application of Directive 2003/49. If the interest in those cases had been paid directly by the Danish company which owed it to the recipient entities which, according to the Ministry of Taxation, were the beneficial owners of the interest, the Kingdom of Denmark would have been able to levy withholding tax.

130 The artificial nature of an arrangement is also supported by the fact that the group in question is organised in such a way that the company receiving the interest paid by the debtor company must itself pay that interest to a third company which does not satisfy the conditions for the application of Directive 2003/49, with the result that that company alone receives negligible taxable income when it operates as a pass-through company in order to enable the flow of funds from the debtor company to the entity which is the legal owner of the sums transferred.

131 The fact that a company operates as a flow-through company can be established if its only activity is to receive the interest and pass it on to the beneficial owner or to other flow-through companies. In that regard, the absence of actual economic activity must be inferred, in the light of the specific characteristics of the economic activity in question, from an examination of all the relevant factors relating, in particular, to the operation of the company, its accounts, the structure of its costs and the expenditure actually incurred, the staff employed by the company and the premises and equipment at its disposal.

132 Furthermore, the existence of different contracts between the companies involved in the financial transactions at issue, which give rise to intra-group cash flows which, as stated in Article 4 of Directive 2003/49, may have as their object the transfer of dividends from a recipient economic company to shareholder entities in order to avoid paying tax or to minimise the tax burden, may constitute evidence of an artificial arrangement. In addition, evidence of such an arrangement may be found in the method of financing the transactions, in the valuation of the equity of the intermediate companies and in the lack of power of the flow-through companies to dispose economically of the interest received. In that regard, it is not only a contractual or legal obligation on the part of the company receiving the interest to pass it on to third parties which may constitute such a holding point, but also the fact that that company, without being bound by such a contractual or legal obligation, 'substantially' - as the referring court stated in Cases C-115/16, C-118/16 and C-119/16 - does not have the rights to use and enjoy those funds.

133 Moreover, such evidence may be reinforced in the case of the coincidence or proximity in time between, on the one hand, the entry into force of new important tax legislation, such as the Danish legislation at issue in the main proceedings, which certain groups are seeking to circumvent, and, on the other, the implementation of complex financial transactions and the granting of loans within the same group.

134 The referring courts also seek clarification as to whether there may be an abuse of rights where the beneficial owner of interest transferred by flow-through companies is ultimately a company established in a third State with which the source State has concluded a double taxation convention under which no withholding tax would have been levied on the interest if it had been paid directly to the company established in that third State.

135 In that regard, the fact that some of the beneficial owners of the interest transferred by flow-through companies are resident for tax purposes in a third State with which the source State has concluded a double taxation convention is irrelevant for the purposes of examining the group structure. It must therefore be held that the existence of such an agreement cannot, of itself, preclude the existence of an abuse of rights. An agreement of that kind cannot therefore call into question the existence of an abuse of rights if it is duly established on the basis of all the facts which show that the traders carried out purely formal or artificial transactions, devoid of any economic or commercial justification, with the principal aim of taking unlawful advantage of the exemption from any form of tax provided for in Article 1(1) of Directive 2003/49.

136 It must be added that, while taxation must correspond to economic reality, the existence of a double taxation convention cannot, of itself, establish the reality of a payment made to recipients resident in the third State with which that convention has been concluded. If the interest debtor company wishes to take advantage of such an agreement, it is possible for the company to pay this interest directly to the entities which are resident for tax purposes in a State with which the source State has concluded a double taxation agreement.

137 Having said that, even in a situation in which the interest would have been exempt if it had been paid directly to the company established in a third State, it cannot be ruled out that the objective of the group structure is not an abuse of rights. In such a case, the group's choice of such a structure instead of paying the interest directly to that company cannot be challenged.

138 Moreover, where the beneficial owner of an interest payment is resident for tax purposes in a third State, the refusal of the exemption provided for in Article 1(1) of Directive 2003/49 is in no way subject to a finding of fraud or abuse of rights. As stated in essence in paragraph 86 of this judgment, that provision is intended solely to exempt interest payments arising in the source State where the beneficial owner of the interest is a company established in another Member State or a permanent establishment situated in another Member State and belonging to a company of a Member State

139 In the light of all those factors, the answer to the first question (d) to (f) in Cases C-115/16, C-118/16 and C-119/16, to the first question (d) and (e) in Case C-299/16 and to the fourth question in Cases C-115/16 and C-118/16 must be that, for the purposes of establishing the existence of an abuse of rights requires, first, a concurrence of objective circumstances from which it is apparent that the objective pursued by the European Union legislation has not been attained, even though the conditions laid down by that legislation have formally been complied with, and, second, a subjective element consisting of an intention to take advantage of the European Union legislation by artificially creating the conditions required to attain that advantage. The existence of a number of elements may establish an abuse of rights, provided that those elements are objective and consistent. Such elements may include the existence of pass-through companies which have no economic justification and the purely formal nature of the structure of a group, of its financial structure and of its loans. The fact that the Member State in which the interest arises has concluded a double taxation convention with the third State in which the company which is the beneficial owner of the interest is resident is irrelevant to any finding of abuse of rights.

The burden of proving the existence of an abuse of rights

140 As is apparent from Article 1(11) and (12) and Article 1(13)(b) of Directive 2003/49, the source State may require a company which has received interest to prove that it is the beneficial owner of the interest within the meaning of that concept as defined in the first indent of paragraph 122 of this judgment.

141 Moreover, the Court has stated more generally that there is nothing to prevent the tax authorities concerned from requiring the taxpayer to provide the evidence which they consider necessary for a specific assessment of the taxes and duties in question and, where appropriate, refusing a requested exemption if such evidence is not provided (see, to that effect, Case C-544/11 Petersen and Petersen [2013] ECR 124, paragraph 51 and the case-law cited therein).

142 If a tax authority of the source State intends to deny to a company which has paid interest to a company established in another Member State the exemption provided for in Article 1(1)(b) of Directive 2006/112/EC, that company may rely on that exemption. 1 of Directive 2003/49 on the ground that there has been an abuse of rights, it is for that authority to prove the existence of the elements constituting such an abuse by taking into account all the relevant factors, in particular the fact that the company to which the interest has been paid is not the beneficial owner of the interest.

143 In that regard, it is not for such an authority to determine the beneficial owner of those interests, but to establish that the alleged beneficial owner is merely a pass-through company through which an abuse of rights has taken place. Such a determination may prove impossible, particularly since the potential beneficial owners are unknown. National tax authorities may not have the necessary information to identify these beneficial owners, given the complexity of certain financial arrangements and the possibility that the intermediary companies involved in the arrangement are resident outside the EU. These authorities cannot therefore be required to provide evidence which it would be impossible for them to obtain.

144 Moreover, even if the potential beneficial owners are known, it is not necessarily established which of them are or will be the real beneficial owners. Thus, where a company receiving interest has a parent company which also has a parent company, it will in all likelihood be impossible for the tax authorities and courts of the source State to determine which of those two parent companies is or will become the beneficial owner of the interest. In addition, a decision on the use of such interest could be taken after the tax authorities have made a determination in respect of the flow-through company.

145 Consequently, the answer to the fifth question in Case C-115/16, the sixth question in Case C-118/16 and the fourth question in Cases C-119/16 and C-299/16 must be that, in order to refuse to recognise a company as the beneficial owner of interest or to establish that there has been an abuse of rights, a national authority is not required to determine which entity or entities it considers to be the beneficial owners of that interest.

The fifth question, points (a) to (c), in Case C-118/16

146 By Question 5(a) to (c) in Case C-118/16, the referring court seeks to ascertain, in particular, whether an SCA authorised as a SICAR under Luxembourg law may be subject to the provisions of Directive 2003/49. That question is relevant only if X SCA, SICAR is to be regarded as the beneficial owner of the interest received by that company from X Denmark, which is a matter for the national court alone to determine.

147 Having clarified that point, it must be pointed out, as the Commission and several of the Governments which have submitted observations have done, that Article 3(a) of Directive 2003/49 makes the status of 'company of a Member State', which may benefit from the advantages provided for by that directive, subject to the fulfilment of three conditions. First, that company must take one of the forms listed in the annex to the directive. Secondly, the company must be considered, in accordance with the tax legislation of the Member State, to be resident in that State and must not be considered, under a double taxation convention, to be resident outside the EU for tax purposes. Third, the company must be subject to one of the taxes listed in Article 3(a)(iii) of Directive 2003/49 without exemption or to an identical or substantially equivalent tax imposed after the entry into force of this Directive in addition to, or in place of, the existing taxes.

148 As regards the first condition, that condition must be regarded as satisfied, subject to review by the national court, in the case of X SCA, SICAR, since an SCA authorised as a SICAR corresponds to one of the types of company listed in the annex to Directive 2003/49, as the Luxembourg Government pointed out at the hearing.

149 As regards the second condition, that condition also appears to be satisfied, subject to the same reservation, since X SCA, SICAR is resident in Luxembourg for tax purposes.

150 As regards the third condition, it is not disputed that X SCA, SICAR is subject to the impôt sur le revenu des collectivités (corporation tax) in Luxembourg, which is one of the taxes listed in Article 3(a)(iii) of Directive 2003/49.

151 If, however, it were to be established, as SKAT has argued in the dispute in the main proceedings in Case C-118/16, that the interest received by X SCA, SICAR is in fact exempt from Luxembourg corporation tax, it must be held that that company does not satisfy the third condition referred to in paragraph 147 of this judgment and that it cannot therefore be regarded as a 'company of a Member State' within the meaning of Directive 2003/49. However, it is for the national court alone to carry out the necessary verification in that regard.

152 That interpretation of the scope of the third condition referred to in paragraph 147 of this judgment is supported, first, by Article 1(5)(b) of Directive 2003/49, which provides that a permanent establishment may be regarded as the beneficial owner of interest within the meaning of that directive only 'if the interest payments [which it receives] constitute income which is subject, in the Member State in which the permanent establishment is situated, to one of the taxes referred to in Article 3(a)(ii) of that directive'. (iii) [...]', on the one hand, and by the purpose of the Directive, which is to ensure that those interest payments are taxed once in a single Member State, as stated, in essence, in paragraph 85 of this judgment.

153 The answer to the fifth question, points (a) to (c), in Case C-118/16 must therefore be that Article 3(a) of Directive 2003/49 must be interpreted as meaning that an SCA authorised under Luxembourg law as a SICAR cannot be classified as a company of a Member State within the meaning of that directive which may benefit from the exemption provided for in Article 1(1) of that directive. 1, if the interest received by that SICAR in a situation such as that in the main proceedings is exempt from Luxembourg corporation tax, which is a matter for the national court to determine.

IV. Legal basis The Corporation Tax Code

Decree-Law No 1125 of 21 November 2005 on the taxation of the income of limited companies, etc. (Corporation Tax Act)

Article 2(1)(d) of the Decree-Law was worded as follows:

"§ 2. The tax liability under this Act shall also be imposed on companies and associations, etc. referred to in Article 1(1), having their registered office abroad,

in so far as they

...

d) receives interest from sources in this country on debts which a company or association etc. covered by § 1 or point a has to foreign legal persons as referred to in § 3 B of the Tax Control Act (controlled debts). This does not apply, however, to interest on claims connected with a permanent establishment covered by point a. The tax liability does not extend to interest if the taxation of the interest is to be waived or reduced under Directive 2003/49/EC on a common system of taxation applicable to interest and royalty payments made between associated companies of different Member States or under a double taxation convention with the Faroe Islands, Greenland or the State of residence of the recipient company, etc. However, this applies only if the paying company and the receiving company are associated as referred to in this Directive for a continuous period of at least one year, within which the time of payment must fall. ... "

Act No 308 of 19 April 2006 deleted the word "foreign" from Article 2(1)(d), first indent, which now covered both Danish and foreign recipients.

The provision, as worded in Royal Decree-Law No 1125 of 21 November 2005, was inserted into the Corporation Tax Code by Law No 221 of 31 March 2004. The preparatory works, Bill No L 119 of 17 December 2003, state, inter alia:

"GENERAL COMMENTS

1. Purpose of the draft law The purpose of the draft law is

...

to implement the provisions of the EU Savings Directive,

...

to limit the scope for tax planning by deducting intra-group interest where the receiving group company pays no or very little tax on the interest deducted in determining Danish taxable income,

...

Content of the bill

...

4.3.3. Limited tax liability of certain intra-group loans

It is proposed that the right to deduct expenses incurred by a Danish company, etc. or a permanent establishment in Denmark is abolished if the payment in respect of the expenses is considered as intra-group tax-free payments under foreign rules. In addition, it is proposed that interest payments on intra-group loans to companies in countries with which Denmark does not have double taxation agreements will be taxed by withholding a tax of 30 per cent.

...

Comments on the individual provisions

...

To § 10

Re No 1

The proposal concerns changes to intra-group loans and the proposal to transpose the Interest/Royalties Directive into Danish tax law.

It is proposed to insert a new provision as point (d) in Section 2(1) of the Corporation Tax Act on the limited tax liability of intra-group interest. The purpose of the provision is to prevent a Danish company etc. from reducing Danish taxation by reducing taxable income through interest payments to certain financial companies in low-tax countries, if the foreign company etc. controls the Danish company etc.

...

The starting point of the proposed § 2(1)(d)(1) is that the limited tax liability of interest shall only cover interest on controlled debt, i.e. where the paying and the receiving company etc. are associated, as defined in § 3 B of the Tax Control Act.

...

b. The limited tax liability shall not cover interest which is covered by the Interest/Royalty Directive or by a double taxation convention between Denmark and the Faroe Islands, Greenland or the country in which the receiving company is resident, with the effect that the taxation of the interest is to be waived or reduced, cf. point 3.

First, it means that the limited tax liability does not extend to a company resident in another EU country if the conditions of the Interest/Royalty Directive are met.

...

Secondly, it means that the limited tax liability shall not extend to interest payments made to a foreign company resident in the Faroe Islands, Greenland or another country which has a double taxation agreement with Denmark, if the agreement entails Denmark waiving or reducing the taxation of the interest.

It is Danish policy not to conclude double taxation agreements with tax haven jurisdictions or other low-tax countries. The main purpose of double taxation agreements is to avoid international double taxation, so there is no particular need to conclude agreements with such countries."

On 17 February 2004, the Minister for Taxation replied to a request from the Association of State-Authorised Accountants to the Parliamentary Tax Committee concerning the above-mentioned draft law as follows (L119 - Annex 16):

"Section 2(1)(d) of the Corporation Tax Act

The FSR criticises the proposed withholding tax on interest payments to certain foreign financial companies.

...

The FSR has doubts as to whether the interest tax will have the desired effect when not all EU countries have similar legislation.

Comment:

...

There is no reason not to tax domestic intra-group interest payments to pure tax haven companies whose purpose is the tax-free collection of interest deducted by other group companies.

It is true that some EU countries have no withholding tax on interest payments to foreign recipients. Nor is it Danish tax policy to tax interest paid from Denmark to foreign recipients. It would simply make it more difficult for Danish businesses to borrow against business-related debts.

However, it is necessary to limit the scope for tax planning by reducing Danish taxation on intra-group interest payments to a foreign group company which pays no or very low tax on the interest received.

The proposed withholding tax on interest is therefore targeted so that it does not cover all interest payments made abroad. The withholding tax will only apply to interest payments to certain financial companies in countries which are not covered by the EU Interest/Royalties Directive or do not have a double tax treaty requiring Denmark to reduce Danish tax on interest payments to that country.

...

The proposed withholding tax would thus not cover interest payments to lenders in countries with which Danish companies usually have business relations. This does open up the risk that, for example, a Danish company could seek to avoid withholding tax on interest payments to a financial company in a low-tax country by paying the interest to a company in another country which is covered by the EU Interest/Royalty Directive or a Danish double taxation agreement and which does not have withholding tax on interest payments to foreign interest recipients, whereupon that company pays the interest on to the company in the low-tax country. In such cases, however, the Danish tax authorities may, after a concrete assessment of the facts, consider that the beneficial owner of the interest is not the company in the other country but the financial company in the low-tax country, so that the interest payment is neither covered by the EU Interest/Royalty Directive nor by the Double Taxation Convention.

Under Article 5(2) of the Interest-Royalty Directive, an EU country may refuse to apply the Directive in the case of transactions for which tax avoidance, evasion or abuse is a significant motive.

The commentary on the OECD Model Double Taxation Convention also allows a State to opt out of the application of a convention in specific cases, see the section on abuse of the convention in the commentary on Article 1 of the Model.

...

If, for example, a Danish company pays interest to a financial company in a low-tax country via a company in another country which is covered by the EU Interest/Royalty Directive or a Danish double taxation agreement, the tax authorities will be able, after a concrete assessment of the facts, to consider that the interest is not covered by the Directive or the agreement."

On 22 March 2004, the Minister for Taxation replied to a number of questions put to the Tax Committee of the Folketing concerning the above bill as follows (L119 - Annex 71):

"Question 54. Can the Minister confirm that even after the recent changes in the rules for holding companies, and after the adoption of the present Bill, it will be the case that distributions and interest payments to holding companies in Cyprus will be tax free (i.e. without Danish dividend tax), even though there will be no taxation of interest and dividends in Cyprus?

Answer: As far as dividends are concerned, Article 2(1)(c) of the Danish Corporate Income Tax Act provides that Denmark will, as a general rule, tax a foreign company on dividends from a Danish company at 28% of the gross amount of the dividend. Under the same rule, however, Denmark does not tax a foreign parent company on the dividend if the tax is to be waived or reduced under the EU Parent/Subsidiary Directive or a double taxation convention.

Under Article 10 of the Danish-Cypriot Double Taxation Convention, Denmark may tax dividends distributed by a Danish company to a company in Cyprus. However, if the Cypriot company owns at least 25% of the Danish company, the Danish tax may not exceed 10% of the gross amount of the dividend. In other cases, the tax may not exceed 15%.

The Double Taxation Convention thus implies that Denmark must reduce the taxation of dividends from a Danish company to a parent company in Cyprus.

Section 2(1)(c) of the Danish Corporate Tax Act then results in Denmark not taxing the dividend.

As far as interest is concerned, Denmark has so far not had rules on the taxation of interest received by a foreign company from a person or company in this country.

Under the present bill, a new rule is inserted in Section 2(1)(d) of the Corporation Tax Act, according to which Denmark will in future tax a foreign company on interest received from a Danish company at 30 per cent of the gross amount of the interest, if certain conditions in this rule are met. Under the same rule, however, Denmark will not tax a foreign parent company on interest if the tax is to be waived or reduced under the EU Savings Directive or a double taxation convention.

Under Article 11 of the Danish-Cypriot Double Taxation Convention, Denmark may tax interest received by a company in Cyprus from sources in this country. However, the Danish tax may not exceed 10% of the gross amount of the interest.

The Double Taxation Convention thus implies that Denmark must reduce the taxation of interest received by a company in Cyprus from sources in this country. The proposed rules in Article 2(1)(d) of the Corporation Tax Act would then result in Denmark not taxing the interest.

Cyprus will become a member of the EU in the near future. This will mean that Denmark will have to waive taxation of dividends and interest under the Parent/Subsidiary Directive and the Interest/Royalties Directive, after which Denmark will not levy withholding tax, even if Denmark wishes to do so. Finally, it should be noted that, as far as I can see, the Danish Treasury does not suffer any loss of revenue from the fact that flow-through companies are located in Denmark."

Act No 540 of 6 June 2007 added the following to Article 2(1)(d) with effect from 1 July 2007:

"The tax liability shall also be extinguished if the receiving company etc. proves that the foreign corporate tax on the interest is at least ¾ of the Danish corporate tax and that it does not pay the interest on to another foreign company etc. which is subject to corporate tax on the interest which is less than ¾ of the Danish corporate tax,".

Corporation Tax Act § 3

Article 3 of the Corporation Tax Act, cf. Legislative Decree No 1745 of 14 December 2006, provides, inter alia:

"Exempt from tax liability are:

[...]

19) Investment companies as defined in Article 19 of the Share Capital Gains Tax Act, with the exception of account-holding investment funds as defined in Article 2 of the Act on the taxation of members of account-holding investment funds and with the exception of distributing investment funds as defined in Article 16 C(1) of the Equalisation Act. [...]"

Tax Control Act § 3 B

The provision was worded as follows in Legislative Decree No 1126 of 24 November 2005:

"§ 3 B. Taxable persons,

1) over which natural or legal persons exercise a controlling influence,

2) which exercise a dominant influence over legal persons,

3) which is affiliated to a legal person,

4) has a permanent establishment situated abroad, or

5) is a foreign natural or legal person with a permanent establishment in Denmark, must provide information in the tax return on the nature and extent of commercial or economic transactions with the above natural and legal persons and permanent establishments (controlled transactions).

(2) Controlling influence means ownership or control of voting rights such that more than 50 per cent of the share capital is owned or controlled, directly or indirectly. In determining whether the taxpayer is deemed to have a controlling influence over a legal person or whether a controlling influence over the taxpayer is exercised by a legal or natural person, shares and voting rights held by affiliated companies shall be taken into account, in accordance with the provisions of Article 5(1) of the Treaty. The shares and voting rights held by the parent company, as defined in Article 4(2) of the Capital Gains Act, by personal shareholders and their close relatives, as defined in Article 16 H(2) of the Equalisation Act, or by a foundation or trust set up by the parent company itself or by the aforementioned group companies, close relatives, etc., or by foundations or trusts set up by them. Similarly, shares and voting rights held by a person covered by Section 1 of the Withholding Tax Act or by an estate covered by Section 1(2) of the Inheritance Tax Act jointly with related parties or jointly with a fund or trust established by the taxpayer or his related parties or funds or trusts established by them shall be taken into account. The taxpayer's spouse, parents and grandparents, as well as children and grandchildren and their spouses or the estates of the aforementioned persons, shall be deemed to be related parties. Stepchildren and adoptive parents are treated in the same way as original relatives.

Group legal persons shall mean legal persons in which the same group of shareholders has a controlling influence.

...".

By Act No 308 of 19 April 2006, which entered into force on 1 May 2006, the following was inserted after the first paragraph of Article 3B(1):

"The legal persons referred to in paragraph 1 shall include companies and associations, etc., which under Danish tax rules do not constitute an independent taxable person but the relations of which are governed by company law rules, a memorandum of association or articles of association."

By the same Act, Section 3B(3) was worded as follows:

"Group legal persons" means legal persons in which the same group of shareholders has a controlling influence or in which there is joint management."

Draft Law No 116 of 14 December 2005, on which Law No 308 of 19 April 2006 was based, states in particular:

"A. Adjustment of the group definition in various safeguard rules

1. Background to the proposal

In recent years, several Danish and foreign private equity funds have acquired Danish groups. The acquisition is made through a Danish holding company set up for the purpose, possibly with a high degree of loan financing and thus substantial interest charges in the Danish holding company/target company. This immediately reduces the taxable income in Denmark of the group concerned.

Private equity funds are typically organised as limited partnerships. Under Danish tax law, limited partnerships are not considered as independent tax entities, but as tax transparent entities. It is therefore the individual participants who are subject to tax. This means that the Danish safeguards on thin capitalisation, the arm's length principle and withholding tax on interest paid to tax havens, which are intended to limit tax planning in respect of debt to affiliated companies (controlled debt), cannot be applied.

The reason is that the endowment fund is not a separate taxable entity and none of the investors owns more than 50% of the capital/voting rights of the holding company. Indeed, the current shelter rules require that one taxpayer (or equivalent foreign entity) owns more than 50% of the capital/voting rights (directly or indirectly).

The current rules on controlled debt, which aim to limit the scope for tax minimisation in international groups, are therefore not applicable to private equity funds.

It is proposed that tax-transparent entities be treated as independent taxpayers for the purposes of the defensive rules on transfer pricing and thin capitalisation, etc. This implies that transactions between a capital fund and its subsidiary are subject to the transfer pricing rules, and that debt of the capital fund is considered to be intra-group debt for the purposes of the thin capitalisation and withholding tax rules on interest, even if the capital fund is not an independent taxpayer. Capital funds are thus treated in the same way as, among others, limited companies.

One consequence of the exclusion of capital funds from the shelter rules under the current rules is that no withholding tax is levied on interest and capital gains paid to the capital fund. Interest payments are deemed to be paid directly to investors. These investors are not individually covered by the protective rule as they own less than 50% of the capital/voting rights of the company paying the interest.

This means that the following scenario is possible:

A holding company is set up in Denmark. The holding company, which is loan-financed by the capital fund, acquires the shares of the Danish company (the target company).

The holding company and the Danish target company are taxed jointly, whereby the interest expenses of the holding company are offset against the taxable income of the target company.

The capital fund is located in a tax haven country with which Denmark does not have, and cannot be expected to have, a double taxation agreement. The Fund is not taxed or is taxed very lightly in the tax haven. Furthermore, this tax haven does not exchange information on the identity of the investors in the Fund with the countries where the investors are resident.

Instead, if the endowment fund had been a separate taxable entity, withholding tax would have been due on all interest payments to endowment funds located in countries that do not have a double taxation agreement with Denmark. This withholding tax is intended to prevent the foreign company receiving the interest from being exempt from taxation or being taxed very lightly, while Denmark allows the company paying the interest to deduct the interest paid.

The proposed amendment ensures that withholding tax is withheld from the interest payment to the capital fund to the extent that the investors are companies etc. and are resident in a country which does not have a double taxation agreement with Denmark.

Another consequence of the exclusion of endowment funds from the protection rules under the current rules is that the thin capitalisation rules do not apply. The holding company of the capital fund thus has a deduction for interest expenses irrespective of the amount of the debt to the capital fund. If the lender were instead a single parent company of the holding company, no deduction would be available for the interest on the debt to the extent that the holding company's debt exceeded its equity by more than a 4:1 ratio.

The current rules are not appropriate. There is no doubt that the capital fund exercises a controlling influence over the holding company when the investors in the capital fund act in concert. Loans from the capital fund to the holding company should therefore be subject to the thin capitalisation rules. In reality, therefore, there is no difference between the situation described and the situation where the capital fund is constituted as a company for tax purposes.

A change is proposed to the group definition in the safeguard rules on transfer pricing, thin capitalisation, withholding tax on intra-group interest and withholding tax on intra-group capital gains, so that debt to transparent entities, such as limited partnerships, is considered controlled debt in the same way as if the foreign lender were a company. Specifically, a criterion is introduced whereby companies and associations which are not considered to be independent taxpayers are covered by the protective provisions when they exercise a controlling influence over a taxpayer and when their relationship is governed by company law rules, a memorandum of association or a statute of association.

...

To Article 7

Re point 1

The amendment of the definition of group in Article 3b of the Tax Control Act introduces, as a general rule, withholding tax on interest and capital gains where the creditor is a limited partnership, etc., and the limited partners are resident abroad.

The amendment to Article 2(1)(d) of the Corporation Tax Act means that interest payments are subject to withholding tax regardless of whether the limited partnership, etc. is Danish or foreign.

The limited partners continue to be the subjects of limited tax liability. The limited partners will be subject to limited tax on the interest where the limited partnership is linked to the debtor company.

The limited partners of the limited partnership are considered as limited taxpayers of the interest and capital gains.

However, the limited tax liability only applies to companies and associations etc. referred to in Article 1 of the Corporation Tax Act which have their registered office abroad, cf. thus the introduction to Article 2 of the Corporation Tax Act. Limited partners who are natural persons are therefore not subject to the limited tax liability. Nor does it apply to natural and legal persons resident in Denmark.

Furthermore, the limited tax liability will not cover interest and capital gains if the taxation is to be waived or reduced under the Interest/Royalty Directive. However, the exemption requires that the paying company and the receiving company are associated (25% ownership, as defined in the Interest/Royalty Directive) for a continuous period of at least 1 year.

Finally, the limited tax liability ceases if the tax is to be waived or reduced under a double taxation agreement with the Faroe Islands, Greenland or the State where the receiving company (limited partner) is resident.

Thus, the interest payer must withhold tax on interest paid to a limited partnership when there are limited taxpayers in the ownership circle, i.e. companies and associations etc. resident in a country which does not have a double taxation agreement with Denmark. Withholding tax is only due on the part of the interest payment corresponding to the limited taxpayers' share of ownership.

It can be assumed that in the vast majority of cases the interest payer will be able to refrain from withholding tax on payments to group entities that are fiscally transparent, since it will be the case of very few partnerships and limited partnerships etc. where there are owners who are legal persons resident in countries with which Denmark does not have a double tax treaty. Most interest payers will therefore be able to pay interest to transparent entities without any consideration of withholding tax."

The Minister's reply of 3 March 2006 to the Tax Committee of the Folketing on the above-mentioned Bill No 116 of 14 December 2005 states, inter alia (L116 - Annex 7):

"FSR: FSR [the Association of State Authorised Accountants] is aware that a few other countries have withholding tax on interest. In these cases, investments in shares and loans by private equity funds are made through holding companies in other EU countries, e.g. Luxembourg. This is also likely to be the situation if Denmark introduces a withholding tax on interest. The consequence would then be that interest payments would be subject to thin capitalisation. Furthermore, the consequence would be that dividends could be distributed on an ongoing basis, which is precisely not the case today because Denmark has a coupon tax on dividends.

Comment: The limited tax liability for interest under Section 2(1)(d) of the Corporation Tax Act covers foreign companies receiving intra-group interest from Denmark. This limited tax liability lapses if the taxation of the interest is to be waived or reduced under the Interest/Royalty Directive or under a double taxation convention.

In this context, it should be noted that, in relation to Article 2(1)(d) of the Corporation Tax Act, the determination of the recipient of the interest must be based on the principle that the recipient of the interest is the rightful owner of the income.

The withholding tax on interest is only waived under the conventions if the beneficial owner of the interest is resident in the other State. The same applies to the Interest/Royalty Directive, see Article 1(1) of the Directive. Furthermore, the benefits of the Directive may be denied in the case of transactions for which tax evasion, tax avoidance or tax abuse is the principal motive or one of the principal motives.

If the investment funds make equity and debt investments through holding companies, it will have to be assessed whether the holding company is the beneficial owner of the interest income. In my view, a pure flow-through holding company in Luxembourg, for example, can hardly be the beneficial owner of the interest income. The Swiss Supreme Court has held that a pure flow-through holding company in Denmark was not the beneficial owner of dividend payments under the Danish-Swiss Convention."

The report issued by the Tax Committee of the Folketing on 22 March 2006 following the first reading of the above bill states, inter alia:

"Section 3B(3) is replaced by the following:

"Paragraph 3. Legal persons linked by a group shall mean legal persons where the same group of shareholders has a controlling influence or where there is joint management."

[Extension of the definition of decisive influence in the transfer pricing rules etc. to include agreements on joint decisive influence and extension of the definition of group-linked legal persons in the transfer pricing rules etc. to include legal persons with joint management].

...

Comments

...

To point 6.

...

If several acquiring private equity funds agree in detail on how the acquired company will be managed in the future, they act as a single entity. There appears to be no difference between this situation and the situation where the acquiring private equity funds set up a joint venture for the purpose of the acquisition. The latter situation is covered by the proposal, the former situation should therefore also be covered by the proposal.

It is therefore proposed that, for the purposes of assessing whether a private equity fund has a controlling influence in a company, holdings and voting rights held by other shareholders with whom the private equity fund has an agreement on the exercise of a controlling influence should be taken into account. At the same time, it is proposed that the provision should also apply to independent corporate taxpayers such as limited liability companies. The transfer pricing rules etc. will thus take effect if two companies have agreed on joint control of a company they own (50/50).

The provision will only apply where there is an agreement to exercise joint control. The provision does not imply that the members of the group are linked to each other. It only implies that the shareholders are deemed to have a controlling influence in the jointly owned company. Both direct and indirect shareholders will be deemed to have a controlling influence in the jointly controlled company. It is therefore not possible to avoid being covered by the provision by contributing an intermediate holding company.

The provision will thus apply to both capital funds and intermediate holding companies where two capital funds have agreed with each intermediate holding company to exercise joint control. This will apply whether the agreement is between the capital funds or between the intermediate holding companies.

The existence of an agreement to exercise joint control will depend on a specific assessment of the agreement in question. This assessment may include whether the agreement entails

- joint control of the majority of voting rights,

- the joint appointment or removal of a majority of the members of the company's supreme management body, or

- joint control over the operational and financial management of the company.

Funds making a joint investment will often agree on joint control. Thus, in the context of the joint investment, the participating funds will typically agree on common guidelines in a number of areas, for example in the form of a shareholders' agreement. These may include, for example, the following:

- Minimum investment/ownership requirements and possible participation in future capital increases to finance further acquisitions.

- The right to demand to sell on the same terms as a selling shareholder and the obligation to have to sell on the same terms as a selling shareholder (so-called tag along & drag along).

- Agreement on the common strategy of the investment (investment horizon, possible preferred exit route).

- Agreement on the joint appointment of board members and the functioning of the board (provisions typically found in the board's rules of procedure on meetings, quorum, majority rules, qualified majority requirements for certain decisions, etc.).

- Guidelines on the strategy of the acquired business.

A shareholders' agreement is not in itself sufficient to establish the existence of an agreement on the exercise of joint control. Some shareholders' agreements contain, for example, provisions on the right of first refusal in the event of a sale and provisions on restrictions on the right of pledge. Such provisions do not in themselves give rise to the exercise of joint control.

In situations of joint control, the companies or the capital funds will be independent in a large number of respects. They will have different investor bases, management, investment profiles, business strategies and tax positions, and they may well each have investments in competing companies. Before a specific investment is made, there will often be no contractual obligations between the companies and the funds.

...

To No 12

Reference may be made to the corresponding amendments concerning Article 2 of the Tax Code (amendment No 6).

Council Directive 2003/49/EC of 3 June 2003 on a common system of taxation applicable to interest and royalty payments made between associated companies of different Member States (Interest and Royalty Directive)

The Directive provides:

"Article 1

Scope and procedure

Interest or royalty payments arising in a Member State shall be exempt from any form of tax in that State, whether imposed by deduction at source or by assessment, provided that the beneficial owner of the interest or royalties in question is a company of another Member State or a permanent establishment situated in another Member State and belonging to a company of a Member State.

...

4. A company of a Member State shall be deemed to be the beneficial owner of interest or royalties only if it receives those payments for its own use and not as an intermediary, including as an agent, nominee or authorised signatory for another person.

...

7. This Article shall apply only if the company which is the payer or the company whose permanent establishment is deemed to be the payer of interest or royalties is an associated company of the company which is the beneficial owner or whose permanent establishment is deemed to be the beneficial owner of such interest or royalties.

...

Article 5

Fraud and abuse

1. This Directive shall not preclude the application of national or contractual provisions to combat fraud or abuse.

2. Member States may withdraw the benefit of this Directive or refuse to apply it in the case of transactions for which tax evasion, tax avoidance or abuse is the principal motive or one of the principal motives."

Double Taxation Conventions

The Nordic Double Taxation Convention

The Convention of 23 September 1996 between the Nordic countries for the avoidance of double taxation with respect to taxes on income and on capital provides, inter alia:

"Article 3

General definitions

...

2. In the application of the Agreement by a Contracting State, any term not defined therein shall, unless the context otherwise requires, have the meaning which it has at that time under the law of that State relating to the taxes to which the Agreement applies, and the meaning which the term has under the tax law of that State shall prevail over the meaning which the term may have under the other law of that State.

...

Article 11

Interest

Interest arising in a Contracting State and paid to a resident of another Contracting State may be taxed in that other State only if that resident is the beneficial owner of the interest."

Convention with Luxembourg

The Convention of 17 November 1988 with Luxembourg for the avoidance of double taxation and the provision of mutual administrative assistance with respect to taxes on income and on capital provides, inter alia, that

"Article 3

General definitions

...

2. In the application of this Convention in a Contracting State, any term not defined therein shall, unless the context otherwise requires, have the meaning which it has under the law of that State concerning the taxes to which the Convention applies.

...

Article 11

Interest

Interest arising in a Contracting State and paid to a person who is a resident of the other Contracting State may, if that person is the beneficial owner of the interest, be taxed only in that other State.

...

FINAL PROTOCOL

By the signature of the Convention between the Kingdom of Denmark and the Grand Duchy of Luxembourg for the avoidance of double taxation and the provisions on mutual administrative assistance in the field of taxes on income and on capital, the undersigned Plenipotentiaries have agreed upon the following provisions, which shall form an integral part of the Agreement:

§ 1. Holding companies

Re Articles 1, 3 and 4:

This Agreement shall not apply to holding companies as governed by the special Luxembourg legislation, currently the Law of 31 July 1929 and the Grand Ducal Regulation of 17 December 1938 (brought into force by § 1, 7o, paragraphs 1 and 2, of the Law of 27 December 1937). Nor does the Agreement apply to income derived by a person resident in Denmark from such companies, nor to shares or other securities in companies of this kind of which such a person is the owner."

The draft law on the basis of which Luxembourg concluded the Double Taxation Convention and its Final Protocol with Denmark states, inter alia, (unauthorised translation):

"Paragraph 1 of the Final Protocol provides that, under Luxembourg law, holding companies are excluded from the scope of the Convention.

Since these holding companies are not subject to income or wealth tax, they are not normally covered by the double taxation conventions.

When the High Contracting Parties have explicitly mentioned Luxembourg holding companies, it is undoubtedly at the request of the Danish co-signatory, which wished to avoid confusion between the taxes mentioned in the Convention and the subscription taxes ["impots d'abonnement"] payable by holding companies.

It is true that the exclusion of holding companies can also be seen as a sign of mistrust on the part of our contracting parties towards one of our most original fiscal and financial institutions.

While we can hardly object to the exclusion of holding companies from the scope of the Convention, we must remain vigilant to ensure that our specific legislation is not attacked head-on by those who, rightly or wrongly, consider themselves its victims."

Correspondence between Denmark and Luxembourg on the Double Taxation Convention On 10 June 1992, the Luxembourg authorities asked the Ministry of Taxation whether "Investment Funds under the Luxembourg law of March 30, 1988" were covered by the Double Taxation Convention, or covered by the Final Protocol and thus subject to Danish taxation. In this connection, it was stated, inter alia:

"I think one cannot assimilate the Investment Funds to holding companies to the extent that would fall under paragraph 1 of the Final Protocol. The first reason is that this provision refers a particular legislation, namely the Act of 31 July 1929 and the Decree of 17 December 1938. As to the Investment Funds, they benefit by a fiscal regime totally independant from the one applying to holding companies. The second reason is that the two kinds of companies totally differ as to their structure and their activities."

On 14 October 1993, the Ministry of Taxation replied that it was of the opinion that the investment funds were not covered by the Agreement as they were covered by the Final Protocol on holding companies. It was stated, inter alia, that

"However, I disagree with you that the two types of companies differ considerably as regards structure and types of activity. On the contrary, there seems to be a great similarity between them in every respect.

In the first place, both types have a high rate of option as regards form of organization.

Secondly, both types of firms make investments in other firms only and do not carry out active business of trade or industry themselves. Also it is important to note that a holding company can be the administrator of an investment

Further, they are treated almost identically for fiscal purposes. Holding companies as well as investment funds are exempt from the greater part of the Luxembourg tax (including the taxes covered by the convention between Denmark and Luxembourg) as only a very small subscriptiontax is to be paid in both cases. Moreover, they are subjected to the same fiscal treatment on distributions to or from a holding company or an investment fund respectively.

As a consequence of the above-mentioned and because to all appearances the laws concerning investment funds was not carried through until after the conclusion of the convention between Denmark and Luxembourg, Denmark is of the opinion that investment funds are covered by paragraph 1 of the final protocol and they can, therefore, not come under the provisions of the convention."

On 14 April 2005, Customs and Tax replied through a tax consultant in the legal department, the personal income tax office, to an enquiry allegedly from a bank in Luxembourg, that it could confirm that the Ligningsrådet had ruled in a 1995 decision that an entity in an investment fund in Luxembourg, a Sicav, was comparable to a Danish investment fund. Told og Skat then stated that a Sicav "in such a case" is entitled to the advantages resulting from the double taxation agreement between Denmark and Luxembourg. It has been stated that the Ligningsrådet decision in question is reported in TfS 1995.195.

On 15 February 2006, the Ministry of Taxation replied to an official enquiry from the Luxembourg tax authorities as to whether the Danish tax authorities, referring to the above-mentioned correspondence of 14 April 2005, still considered Luxembourg investment funds not to be covered by the benefits of the Double Taxation Convention, as follows:

"... I can inform you that I agree on the point of view taken by the Central Customs and Tax Administration in mail of 14 April 2005. This means that Luxembourg investment funds qualify for benefits according to the Double Taxation between and Luxembourg.

Likewise it we consider the new Danish undertakings for collective investments to be covered by the Double Taxation Treaty. As in the note from Ernst & Young, these undertakings are in practise tax exempt but the Danish residents, which own shares in the undertaking, are subject to taxation at an accrual basis of the increase in value of shares in the undertaking."

On 21 February 2006, a newsletter was published on the Luxembourg tax authorities' direct tax website, which stated, inter alia:

"Extension of the scope of the Double Taxation Convention concluded between Denmark and Luxembourg to SICAVs / SICAFs

By exchanges of letters of December 30, 2005 and February 15, 2006, the Danish and Luxembourg tax authorities agreed that Luxembourg investment funds constituted in the form of SICAV / SICAF fall within the scope of the Tax Convention concluded between Denmark and Luxembourg on November 17, 1980.

The tax offices concerned will henceforth issue a certificate of tax residence serving as a supporting document.

Conversely, Danish collective investment undertakings also benefit from the provisions of the aforementioned Convention."

OECD Model Double Taxation Convention with commentary

The OECD Model Double Taxation Convention on Income and on Capital (1977) states, inter alia:

"Article 3

General definitions

...

2. In the application of this Convention in a Contracting State, any term not defined therein shall, unless the context otherwise requires, have the meaning which it has under the law of that State concerning the taxes to which the Convention applies.

...

Article 10

Dividends

Dividends paid by a company which is a resident of a Contracting State to a person who is a resident of the other Contracting State may be taxed in that other State.

Paragraph 2. However, such dividends may also be taxed in the Contracting State of which the company paying the dividend is a resident and according to the laws of that State, but the tax imposed shall not exceed, if the recipient is the beneficial owner of the dividend:

(a) 5 per cent. of the gross amount of the dividend if the beneficial owner is a company (other than a partnership or a limited partnership) which directly owns at least 25 per cent. of the capital of the company paying the dividend;

(b) 15% of the gross amount of the dividend in all other cases.

...

Article 11

Interest

Interest arising in a Contracting State and paid to a resident of the other Contracting State may be taxed in that other State.

2. However, such interest may also be taxed in the Contracting State in which it arises and according to the laws of that State, but the tax charged shall not, if the recipient is the beneficial owner of the interest, exceed 10 per cent of the gross amount of the interest. The competent authorities of the Contracting States shall by mutual agreement determine the mode of implementation of this limitation.

..."

The English text of Articles 10 and 11 was as follows: "Dividends

1. Dividends paid by a company which is a resident of a Contracting State to a resident of the other Contracting State may be taxed in that other State.

2. However, such dividends may also be taxed in the Contracting State of which the company paying the dividends is a resident and according to the low of that State, but if the recipient is the beneficial owner of the dividends the tax so charged shall not exceed:

a) ...

b) ...

...

Interests

Interest arising in a Contracting State and paid to a resident of the other Contracting State may be taxed in that other State.

2. However, such interest may also be taxed in the Contracting State in which it arises and according to the laws of that State, but if the recipient is the beneficial owner of the interest the tax so charged shall not exceed 10 per cent of the gross amount of the interest. The competent authorities of the Contracting States shall by mutual agreement settle the mode of application of this limita-

tion."

The OECD's comments on this point include the following: "MISUSE OF THE AGREEMENT

7. The purpose of double taxation conventions is, by eliminating international double taxation, to promote the exchange of goods and services and the movement of capital and of natural and legal persons. They should not, however, encourage tax avoidance or tax evasion. It is true that, apart from double taxation agreements, taxpayers have the possibility of exploiting differences in tax levels between States and the tax advantages resulting from the tax laws of different countries, but it is up to the States concerned to adopt provisions in their national legislation to discourage any possible artifice. Consequently, such States will wish in their bilateral double taxation conventions to preserve the application of such provisions in their domestic laws.

8. In addition, the extension of the network of double tax treaties reinforces the effect of such artifices by enabling, through the formation of usually artificial legal constructions, the taking of advantage both of the benefits arising from certain domestic laws and of the tax reliefs arising from double tax treaties.

9. This would be the case, for example, if a person (whether or not resident in a Contracting State) disposed through a legal association formed in a State essentially to obtain benefits under the convention which would not be available to the person directly. Another case would be where an individual in a Contracting State has both a permanent home and all of his economic interests, including a substantial share in a company in that State, and, substantially in order to sell the share and avoid taxation in that State on capital gains on the sale (as a result of Article 13(4)), transferred his permanent home to the other Contracting State where such gains were subject to little or no taxation.

10. Some of these situations are dealt with in the Convention, for example by introducing the concept of "beneficial owner" (in Articles 10, 11 and 12) and special provisions for the so-called artist companies (Article 17(2)). Such problems are also mentioned in the comments on Articles 10 (points 17 and 22), 11 (point 12) and 12 (point 7). It may be appropriate for Contracting States to reach agreement in bilateral negotiations that tax relief does not apply in certain cases or to reach agreement that the application of domestic laws against tax avoidance is not affected by the Agreement.

...

COMMENTARY ON ARTICLE 11 ON TAXATION OF INTEREST

...

8. Under paragraph 2, the limitation of taxation in the source State does not apply in cases where an intermediary, such as an agent or a specially appointed person, is interposed between the recipient and the payer, unless the beneficial owner is a resident of the other Contracting State. States wishing to make this clearer are free to do so in bilateral negotiations.

...

10. The paragraph does not determine whether the relief in the source State should depend on whether the interest is taxed in the State of residence. This question can be settled in bilateral negotiations."

The 2003 OECD Model Tax Convention Articles 10 and 11 contained largely identical provisions. The commentary states, inter alia:

"Abuse of the Agreement

...

9.6 The possibility of using general anti-abuse provisions does not mean that tax treaties do not need to include specific provisions aimed at preventing particular forms of tax avoidance. Where particular avoidance techniques have been identified or where the use of such techniques is particularly problematic, it will often be useful to insert provisions in the agreement which focus directly on the relevant avoidance strategy. This will also be necessary in cases where a State, advocating the view described in paragraph 9.2 above, considers that its domestic law lacks the anti-abuse rules or principles necessary to properly counter such a strategy.

10. For example, some forms of tax avoidance are already explicitly addressed in the Agreement, e.g. by the introduction of the concept of "beneficial owner" (in Art. 10, 11 and 12) and in specific provisions such as Art. 17(2) dealing with the so-called artist companies. Such problems are also mentioned in the comments on Articles 10 (points 17 and 22), 11 (point 12) and 12 (point 7).

...

Provisions designed for entities benefiting from particularly favourable tax regimes

21. Special types of companies enjoying tax privileges in their home State facilitate flow-through (conduit) arrangements and raise the issue of harmful tax competition.

In cases where tax-exempt (or quasi-exempt) companies can be identified by specific regulatory features, abuse of tax treaties can be avoided by denying these companies treaty benefits, the exclusion approach. Since such privileges are mainly granted to specific types of companies as defined by business law or by the country's tax law, the most radical solution would be to exclude such companies from the scope of the agreement. Another solution is the insertion of a "safeguarding clause" which would apply to income received or paid by such companies and which could take the following form:

"No provision of the Agreement providing for exemption from, or reduction of, tax shall apply to income received by, or paid by, a company falling within the definition in section ... of Act No. , or which falls within any similar provision enacted by ... after the signing of the Agreement."

...

OECD commentary on Article 11 on taxation of interest

...

8. The beneficial ownership requirement was inserted in Article 11(2) to clarify the meaning of the words "paid to a resident" as used in paragraph 1 of the Article. This makes it clear that the source State is not obliged to renounce its right to tax interest income simply because the income was paid directly to a person who is a resident of a State with which the source State has concluded a convention. The term "beneficial owner" is not used in a narrow technical sense, but must be considered in context and in the light of the object and purpose of the agreement, including the avoidance of double taxation and the prevention of tax evasion and avoidance.

8.1 Relief or exemption from taxation of a type of income shall be granted by the source State to a resident of the other Contracting State in order to avoid, in whole or in part, the double taxation which would otherwise result from the simultaneous taxation of the income by the source State. Where income is paid to a resident of a Contracting State who is acting in his capacity as agent or intermediary, it would not be consistent with the object and purpose of the Convention for the source State to grant relief or exemption solely on the basis of the status of the immediate recipient of the income as a resident of the other Contracting State. The immediate recipient of income in this situation is a resident of the other State, but no double taxation arises as a result, since the recipient of income is not considered to be the owner of the income for tax purposes in the State in which he is resident. It would also be inconsistent with the object and purpose of the Convention for the source State to grant relief or exemption from tax in cases where a resident of a Contracting State, other than as an agent or intermediary, merely acts as a conduit for another person who is the actual recipient of the income in question. For these reasons, the report of the Committee on Fiscal Affairs "Double Taxation Conventions and the Use of Conduit Companies" concludes that a "conduit company" cannot normally be considered the beneficial owner if, although it is the formal owner, it in fact has very narrow powers which, in relation to the income in question, make it a "nullity" or trustee acting on behalf of other parties.

8.2 Subject to the other conditions of the Article, the restriction on the taxing rights of the source State continues to exist where an agent or intermediary, resident in a Contracting State or in a third State, is interposed between the beneficiary and the payer, but the beneficial owner is resident in the other Contracting State (the model text was amended in 1995 to clarify this point, which is consistent with the views of all Member States). States wishing to make this clearer are free to do so in bilateral negotiations.

...

10. The Article does not determine whether the relief in the source State should depend on whether the interest is taxed in the State of residence. This question can be settled in bilateral negotiations."

The 2014 OECD Model Tax Convention contained largely identical provisions. The commentary states, inter alia:

"9. The beneficial owner requirement was inserted in Article 11(2) to clarify the meaning of the words 'paid to a resident' as used in paragraph 1 of this Article. This makes it clear that the source State is not obliged to give up its taxing rights on interest income simply because the interest was paid directly to a person who is a resident of a State with which the source State has concluded a convention.

9.1 Since the term "beneficial owner" was added to address the potential difficulties in applying the words "paid to ... a resident" in paragraph 1, it was intended to be interpreted in that context, but not to refer to any technical meaning that it might have under the domestic law of a given State (indeed, when the term was added to the paragraph, in many States it did not have a precise statutory meaning). The term "beneficial owner" is therefore not used in a narrow, technical sense (such as the meaning it has in the trust legislation of many common law States), but rather it must be understood in its context, in particular in relation to the words "paid ... to a resident", and in light of the intent and purpose of the agreement, including to avoid double taxation and prevent tax avoidance and evasion.

10. Relief or exemption from taxation of a type of income shall be granted by the source State to a resident of the other Contracting State in order to avoid, in whole or in part, the double taxation which would otherwise result from the simultaneous taxation of the income by the resident State. Where income is paid to a resident of a Contracting State acting in his capacity as agent or intermediary, it would not be consistent with the object and purpose of the Convention for the source State to grant relief or exemption solely on the basis of the status of the direct recipient of the income as a resident of the other Contracting State. The direct recipient of income in this situation is a resident of the other State, but no double taxation arises as a result, since the recipient of income is not considered to be the owner of the income for tax purposes in the State in which he is resident.

10.1 It would also be inconsistent with the intent and purpose of the Convention for the source State to grant relief or exemption from tax in cases where a resident of a Contracting State, other than as an agent or intermediary, merely acts as a conduit for another person who is the actual recipient of the income in question. For these reasons, the Commit-

on Fiscal Affairs report "Double Taxation Conventions and the Use of Conduit Companies "2 concludes that a "conduit company" is normally

cannot be considered the beneficial owner if, although it is the formal owner, it has in reality very narrow powers which, in relation to the income in question, make it a "nullity" or trustee acting on behalf of other parties.

10.2 In these various examples (agent, intermediary, conduit company in its capacity as nominee or trustee), the direct recipient of interest is not the "beneficial owner" because the recipient's right to use and enjoy the interest is limited by contractual or legal obligations to pass on the payments received to another person.

Such an obligation will usually be apparent from relevant legal documents, but may also be present already by virtue of the facts, which show quite clearly that the recipient has substantially no rights to use and enjoy the interest, albeit without being bound by a contractual or legal obligation to pass on the payments received to another person. This type of obligation does not include contractual or legal obligations that are not conditional on the onward payment by the direct recipient, such as an obligation that is not conditional on the receipt of such a payment and that the direct recipient has as a debtor or as a party to financial transactions or customary distribution obligations under a pension contract or to collective investment entities that would be entitled to collective benefits under the principles set out in paragraphs 6.8 to 6.34 of the commentary to Article 1. Where the recipient of an annuity has the right to use and enjoy the proceeds without being bound by contractual or legal obligations to pass on the payments received to another person

the recipient is the "rightful owner" of that interest. It should also be noted that Art. 11 refers to the beneficial owner of the interest as opposed to the owner of the forfeiture from which the interest arises, and they may be different in certain situations.

10.3 However, the fact that a recipient of interest income is deemed to be the beneficial owner of that interest does not mean that the reduction in tax provided for in paragraph 2 should automatically be granted. This reduction of tax should not be granted in the event of abuse of the provision (see also point 8 above). As explained in the "Abuse of the Agreement" section of the commentary to Art. 1, there are many ways to treat a conduit company, and more generally, treaty shopping situations. These include specific anti-abuse provisions in agreements, general anti-abuse provisions, and substance-over-form or economic-substance approaches. While the "beneficial owner" concept does encompass some forms of tax avoidance (i.e., the type that involves the appointment of a recipient who is obligated to pass on the royalties to another person), there are other types that it does not encompass: thus, it does not encompass other forms of treaty shopping, and it therefore should not be viewed as a concept that in any way limits the application of other principles relating to such matters.

10.4 The above explanations of the concept of "beneficial owner" make it clear that the meaning of this term, as reflected in the context of the Article, must be distinguished from other interpretations of the same concept, but in other contexts, which relate to the identification of the person (typically a natural person) who has ultimate control over the entities or assets. Such a different understanding of the term "legal owner" cannot be applied in the interpretation of the Agreement. In fact, however, the understanding of the provision that refers to a natural person cannot be reconciled with the explicit wording of Article 10(2)(a), which refers to cases where a company is the legal owner of a dividend. The concept of "beneficial owner" as used in Articles 10 and 11 is intended to address the problems arising from the use of the words "paid to" in relation to dividends and interest, rather than the difficulties relating to the ownership of shares or securities from which dividends and interest arise. For that reason, it would not be appropriate, in applying these Articles, to consider the application of an interpretation that has been developed to refer to natural persons exercising: "ultimate effective control over legal persons or arrangements".

11. It follows from the provisions contained in the Article that the limitation of the taxing rights of the source State also applies where an intermediary, such as an agent or a representative, resident in the Contracting State or in a third State, is interposed between the recipient and the payer, but the beneficial owner is resident in the other Contracting State (the text was amended in 1995 and in 2014 to clarify this, which is in line with the position of all Member States).

...

13. The Article does not determine whether the relief in the source State should depend on whether the interest is taxed in the State of residence. This question can be settled by bilateral negotiations."

On 27 November 2006, the Minister of Taxation answered a number of questions to the Tax Committee of the Danish Parliament in connection with a bill amending Denmark's double taxation agreement with the United States. These included:

"Question 5: Does the treaty mean that 5 per cent dividend tax must be withheld in Denmark if dividends from a Danish company are paid to a flow-through holding company in Luxembourg owned by US private equity funds in which none of the owners holds 80 per cent or more of the voting rights?

A: The starting point is that a foreign company receiving dividends from Danish companies is subject to limited tax liability on the dividends. The tax liability is met by withholding 28% dividend tax. Section 2(1)(c) of the Corporation Tax Act means that there is no limited tax liability if the dividends are received by a company which owns at least 20 per cent of the share capital of the company making the dividend. This is, inter alia, a condition that the tax is to be waived or reduced under the EU Parent/Subsidiary Directive or under a double taxation convention with the country of residence of the foreign company. The waiver of limited tax liability is conditional on the foreign company concerned being the beneficial owner of the dividend. A pure flow-through company which is resident abroad, e.g. Luxembourg, will not be the beneficial owner of the dividend, see comments on Article 10 of the OECD Model Tax Convention (section 12.1).

However, the limited tax liability will still lapse if the beneficial owner behind the flow-through company is resident in another country and Denmark is required by the Parent/Subsidiary Directive or a double taxation convention with that country to reduce or eliminate the taxation of the dividend."

UCITS Directive 85/611/EEC

Council Directive 85/611/EEC of 20 December 1985 on the coordination of laws, regulations and administrative provisions relating to undertakings for collective investment in transferable securities (UCITS) provided, inter alia:

"SECTION I

General provisions and scope

Article 1

1. Member States shall apply the provisions of this Directive to undertakings for collective investment in transferable securities (UCITS) situated within their territories.

2. For the purposes of this Directive and without prejudice to Article 2, UCITS shall mean undertakings the sole object of which is the collective investment in transferable securities of capital provided by the public, the business of which is based on the principle of risk spreading and the units of which are, at the request of the holders, repurchased or redeemed, directly or indirectly, out of the assets of such undertakings. The fact that a UCITS takes steps to ensure that the market value of its units does not differ significantly from the net asset value shall be treated as equivalent to such repurchase or redemption.

3. These institutions may be constituted under the law by agreement (investment funds managed by management companies) or as trusts (unit trusts) or by statute (investment company).

For the purposes of this Directive, the term "investment fund" also includes the term "unit trust".

4. However, this Directive does not cover investment companies the assets of which are invested, through subsidiaries, mainly in securities other than shares.

...

Article 2

The following UCITS shall not be considered as UCITS covered by this Directive

closed-end UCITS,

-UCITS which provide capital without offering their units to the public in the Community or any part thereof,

-UCITS the units of which may, under the fund rules or the instruments of incorporation of investment companies, be offered to the public only in third countries,

-the categories of UCITS defined by the rules of the Member State in which the UCITS is situated and for which the rules laid down in Section V and Article 36 are inappropriate because of the investment and borrowing policy of the UCITS.

... SECTION V

Obligations relating to the investment policy of UCITS

...

Article 22

A UCITS may not invest more than 5 % of its assets in transferable securities issued by the same body.

2. Member States may increase the limit referred to in paragraph 1 to a maximum of 10 %. However, in cases where a UCITS invests more than 5 % of its assets in transferable securities of the same issuer, the total value of such transferable securities acquired and held by the UCITS shall not exceed 40 % of its assets.

3. Member States may increase the limit referred to in paragraph 1 to a maximum of 35 % where the securities are issued or guaranteed by a Member State, by its local authorities, by a third country or by public international bodies of which one or more Member States are members.

...

Article 57

1. Member States shall bring into force the measures necessary to comply with this Directive not later than 1 October 1989. They shall forthwith inform the Commission thereof."

Directive 2009/65/EC on UCITS

Directive 2009/65/EC of the European Parliament and of the Council of 13 July 2009 on the coordination of laws, regulations and administrative provisions relating to undertakings for collective investment in transferable securities (UCITS) provides, inter alia, that

"Article 1

1. This Directive shall apply to undertakings for collective investment in transferable securities (UCITS) established in the territory of the Member States.

2. For the purposes of this Directive and without prejudice to Article 3, UCITS shall mean an undertaking:

(a) the sole object of which is the collective investment in transferable securities or in other liquid financial assets referred to in Article 50(1) of capital raised from the public and the activities of which are based on the principle of risk spreading; and

(b) the units of which are, at the request of the holders, repurchased or redeemed, directly or indirectly, out of the assets of such institutions. The fact that a UCITS takes steps to ensure that the market value of its units does not deviate from their net asset value shall be treated as equivalent to such repurchases or redemptions.

Member States may permit investment companies to consist of more than one investment compartment.

3. The entities referred to in paragraph 2 may be constituted by contract (unit trusts managed by the management company), by trust (unit trusts) or by statute (investment companies).

For the purposes of this Directive

(a) the term "investment fund" includes the term "unit trust

(b) the term 'units' of UCITS shall include shares of UCITS.

4. This Directive shall not apply to investment companies the assets of which are invested, through subsidiaries, mainly in assets other than transferable securities.

...

Article 3

The following institutions shall be excluded from the scope of this Directive

(a) closed collective investment undertakings

(b) collective investment undertakings which raise capital without seeking to offer their units to the public in the Community or any part thereof

(c) collective investment undertakings the units of which may, under the fund rules or the instruments of incorporation of investment companies, be sold to the public only in third countries

(d) the categories of collective investment undertakings defined by the rules of the Member State in which such collective investment undertakings are established and for which the rules laid down in Chapter VII and Article 83 are inappropriate because of their investment and borrowing policies.

...

CHAPTER VII

OBLIGATIONS REGARDING THE INVESTMENT POLICY OF UCITS

...

Article 50

1. A UCITS' portfolio shall consist of one or more of the following:

...

2. However, a UCITS shall not:

(a) invest more than 10 % of its assets in transferable securities or money market instruments other than those referred to in paragraph 1; or

(b) acquire precious metals or certificates therefor.

UCITS may hold ancillary liquid assets.

3. An investment firm may acquire movable or immovable property which is essential for the direct pursuit of its business.

Article 51

A management company or investment firm shall employ a risk management process which enables it to monitor and measure at any time the risk of positions and their contribution to the overall risk profile of the portfolio.

It shall employ a process that allows for an accurate and independent assessment of the value of the OTC derivatives.

It shall keep the competent authorities of its home Member State regularly informed of the nature of the derivative instruments, the underlying risks, the quantitative limits and the methods chosen for the risk assessment of transactions in derivative instruments for each of the UCITS it manages.

...

Article 52

A UCITS shall invest no more than

(a) 5 % of its assets in transferable securities or money market instruments issued by the same body; or

(b) 20 % of its assets in deposits with the same body.

The exposure of the UCITS counterparty to OTC derivative transactions shall not exceed:

(a) 10 % of its assets where the counterparty is a credit institution as referred to in Article 50(1)(f); or

(b) 5 % of its assets in other cases.

The Directive also provides that Member States may, under specified conditions, increase the above investment limits to a certain extent.

The Directive also contains detailed rules on, inter alia, the authorisation of UCITS to carry on their business, on information obligations for investors, including detailed information on the risks associated with the investment, and on limited borrowing possibilities.

Relevant Luxembourg legislation on the taxation of investments

Law of 31 July 1929

The law provided, inter alia, (unauthorised translation):

"Art. 1st. Will be considered as a Holding company, any luxembourgeoise company whose purpose is exclusive of the acquisition of participations, under some form whatsoever, in other Luxembourg companies bourgeois or foreign and management as well as the development of these participations, in a way that it does not have its own industrial activity and that it is not a commercial establishment open to the public. The portfolio of companies Holding pent understand Luxembourg public funds bourgeois or foreigners.

The Holding company will be exempt from tax on income, surcharge, additional pot rim and coupon tax, without having right to the refund of the tax on the coupon collected by the native bonds that it holds in wallet; she is also exempt additional centimes from the municipalities.

The Holding company will be subject to taxes following:

1. The acts of formation and improvement of the society as well as deeds increasing share capital will be subject to the right proportional, established by art. 40 and 41 of the law of December 23, 1913, ...

2. The annual and compulsory subscription fee in charge of company titles, provided for by art. 34 and ss. of the law of December 23, 1913 ...

3. The stamp duty on securities issued by holding companies is due, under penalty of a fine an additional ten, within two months of registration de Parte creating these securities, ..."

Decree of 17 December 1938 on the tax regime applicable to holding companies receiving contributions consisting of the assets of a foreign company of at least one billion francs:

"Article 2.

(1) Where the total share and debenture capital of a holding company within the meaning of Article 1 reaches one billion francs or the equivalent thereof in gold, in an account currency related to gold, or in a foreign currency, the following taxes shall be levied

(a) the compulsory annual subscription fee charged for securities issued by holding companies;

(b) income tax, additional tax and supplementary tax which may be payable by directors, commissioners and liquidators resident for less than six months a year in the Grand Duchy of Luxembourg and by creditors other than holders of bonds or other negotiable securities of a similar nature resident for less than six months a year in the Grand Duchy of Luxembourg;

(c) additional cents for the benefit of municipalities;

shall be replaced by a tax on income which, to the exclusion of all other taxes, shall be levied only on:

(a) interest paid to holders of bonds and other negotiable instruments of a similar nature;

(b) dividends paid to shareholders;

(c) the remuneration and fees of directors, commissioners and liquidators who reside for less than six months in each year in the Grand Duchy of Luxembourg.

(2) This income tax is levied according to the following scales:

A. Where the total interest paid each year to holders of bonds and other negotiable securities of a similar nature reaches or exceeds one hundred million (100 000 000) francs;

(a) three percent (3%) on interest paid to such bondholders and other securities;

(b) eighteen per cent. (18 p.m.) on dividends, bonuses and salaries up to a maximum distribution of fifty million francs (50 million francs);

(c) one per mille (1 p.m.) of the profits of the said dividends, fees and remunerations.

B. If the total interest paid each year to holders of bonds and other negotiable instruments of a similar nature is less than one hundred million (100 million) francs:

(a) three percent (3%) on interest paid to such bondholders and other security holders;

(b) three per cent (3%) on dividends, fees and remunerations, up to an amount equal to the difference between one hundred million (100 million) and the total amount of interest paid to holders of bonds and other negotiable instruments of a similar nature;

c) 18 per cent. (18 p.m.) on the profits of dividends, fees and remunerations up to a maximum distribution of 50 million francs;

(d) one part per thousand (1 p.m.) of the profits of the said dividends, fees and remunerations."

By decision of 19 July 2006, the Commission decided that the tax regime then applicable in Luxembourg to holding companies under the Law of 31 July 1929 was a State aid scheme incompatible with the common market. Luxembourg was required to abolish the scheme by 31 December 2006. It has been informed that the 1929 tax scheme was abolished on 22 December 2006.

Law of 30 March 1988 and Law of 20 December 2002 (SICAF and SICAV)

The Law of 30 March 1988 on undertakings for collective investment [Société d'Investissement à capital fixe and Société d'Investissement à capital variable] provides, inter alia, that

"PART I:

Undertakings for collective investment in transferable securities Chapter 1.

General provisions and scope

Art. 1. (1) This Part shall apply to all undertakings for collective investment in transferable securities (UCITS) situated in the Grand Duchy of Luxembourg.

(2) For the purposes of this Law, an institution shall be deemed to be a UCITS institution, subject to Article 2

- the sole object of which is the collective investment in transferable securities of capital provided by the public and which operates on the principle of risk spreading; and

- the units of which are, at the request of the unit-holders, redeemed directly or indirectly out of the assets of the body. Such redemptions shall include action by a UCITS to ensure that the market value of its units does not differ significantly from their net asset value.

(3) These organisations may be contractual (mutual funds managed by a management company) or the statutory form (investment company).

(4) However, this Part does not apply to investment companies whose assets are invested through subsidiaries mainly in real estate other than securities.

...

Art. 2. This Part shall not apply to:

closed-end funds; UCIs which raise capital without promoting the sale of their units to the public in the European Economic Community or any part thereof; UCIs the units of which may, under their statutes, be sold to the public only in countries which are not members of the European Economic Community; categories of UCIs determined by the supervisory authority for which the rules laid down in Chapter 5 are inappropriate because of their investment and borrowing policies.

...

Chapter 3. Investment companies with variable capital in transferable securities (SICAV)

Art. 24. Investment companies with variable capital (SICAVs) within the meaning of this Part are companies which have adopted the form of a société anonyme in accordance with Luxembourg law,

- the sole object of which is to invest their assets in transferable securities with a view to spreading investment risks and enabling their shareholders to benefit from the results of the management of their assets; and

- whose shares are to be placed with the public by public or private offer and whose articles of association provide that their capital must at all times be equal to the value of their net assets.

...

Chapter 5 Investment policy of a UCITS

...

Art. 42. (1) A UCITS may not invest more than 10% of its assets in the securities of any single issuer. In addition, the total value of the UCITS' holdings in issuers in which it invests more than 5 % of its assets shall not exceed 40 % of the value of the UCITS' assets.

(2) The limit of 10 % referred to in paragraph 1 may be raised to 35 % if the securities are issued or guaranteed by a Member State of the European Economic Community, by its local authorities, by a State which is not a member of the European Economic Community or by public international bodies of which one or more Member States of the European Economic Community are members.

(3) The limit of 10% referred to in paragraph 1 may be raised to 25% for certain debt securities if they are issued by a credit institution which has its head office in a Member State of the European Economic Community and which is subject by law to special public supervision designed to protect the holders of such debt securities. In particular, the proceeds from the issue of such bonds must, in accordance with the law, be invested in assets which adequately cover the obligations arising therefrom throughout the period of validity of the bonds and which have priority for the repayment of principal and the payment of accrued interest in the event of default by the issuer. Where a UCITS invests more than 5 % of its assets in the bonds referred to in this paragraph issued by the same issuer, the total value of such investments shall not exceed 80 % of the value of the assets of the UCITS.

(4) The securities referred to in paragraphs 2 and 3 shall not be taken into account in calculating the 40 % limit laid down in paragraph 1.

The limits laid down in paragraphs 1, 2 and 3 may not be aggregated and, accordingly, investments in securities of the same issuer made in accordance with paragraphs 1, 2 and 3 may in no case exceed a total of 35 % of the assets of the UCITS.

Art. 43. (1) Notwithstanding Article 42, the supervisory authority may allow a UCITS to invest, in accordance with the principle of risk spreading, up to 100 % of its assets in different securities issued or guaranteed by a Member State of the European Economic Community, by its local authorities, by a State which is not a member of the European Economic Community or by public international bodies of which one or more Member States of the European Economic Community are members. The supervisory authority shall grant such authorisation only if it is satisfied that the unit-holders of the UCITS enjoy a level of protection equivalent to that enjoyed by unit-holders of UCITS complying with the restrictions laid down in Article 42.

Such UCITS shall hold securities of at least six different issues, with securities of any one issue not exceeding 30

% of the total amount.

(2) The UCITS referred to in paragraph 1 shall expressly mention in their instruments of incorporation the States, local authorities or public international bodies issuing or guaranteeing the securities in which they intend to invest more than 35 % of their assets.

(3) In addition, the UCITS referred to in paragraph 1 shall include in their prospectuses or in any promotional material a prominent statement drawing attention to this authorisation and indicating the States, local authorities and public international bodies in whose securities they intend to invest or have invested more than 35 % of their assets.

...

PART II:

Other collective investment undertakings

Chapter 8.

Scope

Art. 58. This Part applies to all UCITS excluded under Article 2 of this Law and to all other undertakings for collective investment situated in the Grand Duchy of Luxembourg.

...

Chapter 9. Investment funds (Fonds communs de placement)

Art. 60. For the purposes of this Part, an investment fund shall be deemed to be an undivided pool of securities constituted and managed according to the principle of risk spreading for the benefit of undivided owners who are committed only to their investment and whose rights are represented by units intended for public placement by public or private offer.

...

Art. 62. (1) A Grand-Ducal Regulation, adopted on a proposal or on the recommendation of the supervisory authority, may in particular provide for

...

(d) the maximum percentage of securities of the same class issued by the same body which may be held by the mutual fund;

(e) the maximum percentage of the assets of the mutual fund which may be invested in securities of the same body;

(f) the conditions and, where applicable, the maximum percentages by which the mutual fund may invest in the securities of other collective investment undertakings;

...

Chapter 10. Investment companies with variable capital (SICAVs)

Art. 64. Investment companies with variable capital within the meaning of this Part shall mean investment companies which have adopted the form of a société anonyme in accordance with Luxembourg law,

- the sole object of which is to invest their assets in transferable securities with a view to spreading the investment risk and enabling investors to benefit from the results of the management of their assets; and

- the shares of which are to be placed with the public by means of a public or private offer; and

- the articles of association of which provide that the capital shall at all times be equal to the net assets of the company.

...

Art. 66. (1) A Grand-Ducal Regulation, adopted on a proposal or on the recommendation of the supervisory authority, may in particular provide for

...

(d) the maximum percentage of securities of the same class issued by the same body which may be held by the fund;

(e) the maximum percentage of the assets of the fund which the fund may invest in securities issued by a single body;

(f) the conditions and, where applicable, the maximum percentages that the company may invest in securities of other UCITS;

...

Chapter 17. Tax provisions 1

Art. 105. (1) Except for the capital duty on capital contributions in civil and commercial companies and the subscription tax referred to in Article 108 below, no other tax shall be payable by the collective investment undertakings referred to in this Law.

(2) Payments made by these organizations shall be made without withholding tax and shall not be taxed in the hands of non-resident taxpayers."

The Law of 30 March 1988 was replaced, with certain transitional provisions, by the Law of 20 December 2002 on undertakings for collective investment, etc. The Law contains, for the purposes of this case, essentially the same provisions as the Law of 30 March 1988. The Law provides that it applies to 'UCITS', defined as an undertaking for collective investment in transferable securities covered by Council Directive 85/611/EEC of 20 December 1985 on the coordination of laws, regulations and administrative provisions relating to undertakings for collective investment in transferable securities (UCITS), as amended.

Law of 22 June 2004 on Risk Capital Investment Company (SICAR)

This law on SICAR [Société d'investissement en capital à risque] companies provides, inter alia, that

"Art. 1st. (1) For the purposes of this law, a capital investment company shall be considered risk, in short SICAR, any company:

- which has adopted the form of a limited partnership, a limited partnership with shares, a cooperative company organized as a public limited company, a limited liability company or a public limited company incorporated under Luxembourg law, and

- whose object is the investment of its funds in securities representative of risk capital in order to benefit investors from the results of the management of their assets in return for the risk they support, and

- which reserves its securities for informed investors as defined in article 2 of this law, and

- whose articles of association provide that it is subject to the provisions of this law.

(2) Investment in risk capital is understood to mean the direct or indirect contribution of funds to entities with a view to their launch, development or IPO.

(3) The registered office and central administration of a Luxembourg SICAR must be located at Luxembourg.

Art. 2. A well-informed investor within the meaning of this law is the institutional investor, the professional investor as well as any other investor who meets the following conditions:

1) he has declared in writing his adherence to the status of informed investor and

2) he invests a minimum of 125,000 euros in the company, or

3) it benefits from an assessment, on the part of a credit institution, from another professional in the sector financial institution subject to rules of conduct within the meaning of Article II of Directive 93/22 / EEC, or of a management within the meaning of Directive 2001 / l07 / CE certifying its expertise, experience and knowledge to Appreciate an investment in risk capital adequately. The conditions of this article do not apply to general partners of limited partnerships.

...

Chapter IX: Tax provisions

Art. 34. (1) The amended law of 4 December 1967 on income tax is amended as follows:

...

(2) Do not constitute taxable income in the hands of a capital company referred to in this law, income from securities as well as income generated by the sale, or liquidation of these assets. Capital losses realized on the disposal of transferable securities as well as capital losses not realized but recognized as a result of the write-down of these assets cannot be deducted from taxable income of the company."

Law of 11 May 2005 (SPF)

The law on the "creation of a family wealth management company" [Société de gestion de patrimoine familial] states in particular

"Art. 1. (1) For the purposes of this Law, any company shall be deemed to be a family wealth management company, abbreviated as SPF:

- which has taken the form of a limited liability company, a public limited company, a private limited company or a cooperative organised as a public limited company; and

- the sole object of which is the acquisition, holding, management and realisation of financial assets as defined in Article 2 of this Law, to the exclusion of any commercial activity; and

- which reserves its shares or units for investors as defined in Article 3 of this Law; and

- whose statutes expressly provide that it is subject to the provisions of this Law.

...

Art. 2 (1) Financial assets within the meaning of this Law shall mean (i) financial instruments within the meaning of the Law of 5 August 2005 on financial collateral and (ii) cash and assets of any kind held on account.

(2) The SPF may hold a share in a company only on condition that it does not intervene in the management of the company.

Art. 3 (1) A qualified investor within the meaning of this Law is one of the following persons

a) a natural person acting in the course of the management of his private wealth; or

(b) an entity dealing exclusively in the private property interests of one or more natural persons; or

(c) an intermediary acting on behalf of investors referred to in point (a) or (b) of this paragraph.

Each investor shall declare this status in writing to a representative of the SPF company or, if that is not possible, to the board of directors of the SPF.

(2) Securities issued by an SPF may not be publicly placed or listed on a stock exchange.

Chapter II: Tax provisions

Art. 4 (1) The SPF is exempt from income tax, municipal business tax and wealth tax.

(2) Any SPF which has received, during the current financial year, at least 5% of the total dividends from shares in non-resident and non-listed companies which are not subject to a tax comparable to the corporate income tax pursuant to the amended law of 4 December 1967 on income tax shall be excluded from the tax regime referred to in paragraph (1).

(3) A company resident in an EU Member State and covered by Article 2 of Council Directive 90/435/EEC of 23 July 1990 on the common system of taxation applicable in the case of parent companies and subsidiaries of different Member States, as amended, satisfies the condition of comparable taxation.

Art. 5 (1) The SPF is subject to an annual subscription tax of 0.25%, but the amount of this tax may not be less than an annual amount of EUR 100. The subscription tax may not exceed an amount of one hundred and twenty-five thousand euro per year.

year."

Share Premium Tax Act § 19

Section 19(1) and (2) of the Act on the Taxation of Share Premium, as laid down in Legislative Decree No 172 of 29 January 2021, reads as follows:

"An investment company shall mean:

1. a UCITS within the meaning of Directive 2009/65/EC of the European Parliament and of the Council, as set out in Annex 1.

A company, etc., the business of which is to invest in transferable securities, etc., and the units of which are to be repurchased at the request of the holders for funds out of the company's assets at a market value which is not significantly lower than the net asset value. Repurchase shall mean the expression by a third party to the company that either he or some other natural or legal person will, if so requested, purchase any holding at a market value not substantially less than the net asset value. The requirement of repurchase on demand is fulfilled even if the demand is complied with only within a certain period of time. Notwithstanding the absence of an obligation to repurchase, the company shall be considered an investment firm if its business consists of collective investment in transferable securities etc. Collective investment means that the company has at least 8 members. Affiliated and related participants, as defined in Article 4(2) of the Capital Gains Act and Article 4(2) of this Act, shall be considered as one participant for this purpose.

Paragraph 2. An investment company as referred to in paragraph 1, point 2, first indent, shall not include a company, etc., the assets of which are invested through subsidiaries mainly in assets other than securities, etc. A subsidiary shall mean a company in which the parent company has a controlling influence, cf.

2. An investment firm as referred to in paragraph 1(2)(4) shall not include a company, etc., if more than 15 % of its accounting assets on average during the financial year are invested in assets other than transferable securities, etc. Transferable securities shall not include shares in another company in which the former company holds at least 10 % of the share capital, unless the other company is itself an investment firm within the meaning of paragraph 1. If a company has a controlling interest in a company within the meaning of Section 2(2) of the Equalisation Act, these shares shall be disregarded in the calculation referred to in the third paragraph and the proportion of the other company's assets corresponding to the first company's direct or indirect holding in the other company shall be taken into account instead.

Paragraph 3. An investment company as referred to in paragraph 1 shall not include a UCITS subject to minimum taxation within the meaning of Section 16 C of the Equalisation Act. An investment company as referred to in paragraph 1 shall also not include an account-holding association which fulfils the conditions laid down in Article 2(2) and (3) of the Act on the taxation of members of account-holding investment associations."

The provision in Article 19(2) was originally inserted into the Profit Tax Act by Act No 98 of 10 February 2009, with the following wording:

"Paragraph 3. An investment company as referred to in paragraph 2(2)(5) shall not include a company, etc., if more than 15 per cent of its accounting assets on average during the financial year are invested in assets other than transferable securities, etc. Transferable securities shall not include shares in another company in which the former company owns at least 10 per cent of the share capital, unless the other company is itself an investment company within the meaning of paragraph 2.

If a company directly or indirectly controls or holds shares in a company affiliated to a group, as defined in Article 2(2) of the Equalisation Act, it shall be deemed to be an investment company.

2 and 3, those shares shall be disregarded in the calculation referred to in the first paragraph and the proportion of the assets of the other company which corresponds to the direct or indirect holding of the first company in the other company shall be taken into account instead."

The preparatory work, Additional Report on the Proposal for an Act amending the Corporation Tax Act, the Merger Tax Act and various other Acts (Adjustment of the interest deduction limitation rules, etc.), submitted by the Tax Committee on 28 January 2009, states, inter alia:

"NOTES

...

To No. 2

Article 19(3) of the Share Premium Tax Act means that companies are not to be regarded as investment companies even if they fulfil the conditions laid down in paragraph 2. In order to avoid the concept of investment companies becoming too broad, it is proposed to extend the exemption rule in paragraph 3 and to insert a new exemption in a new paragraph 5.

The current provision in Article 19(3) is that a company is not an investment firm if its assets are invested, through a subsidiary, mainly in assets other than transferable securities. A subsidiary means that the holding company (parent company) directly or indirectly holds more than half of the share capital or half of the voting rights.

The new wording of Article 19(3) is intended to avoid that companies based on production activities as well as holding companies in usual groups based on production activities are considered as an investment firm covered by Article 19.

Firstly, it is proposed that the concept of investment firm should not include a company if more than 15 per cent of its accounting assets on average during the financial year in question are invested in assets other than securities, as covered by the law on taxation of capital gains or the law on taxation of exchange gains.

Secondly, it is proposed that where a company owns more than 10 per cent of the share capital of another company, the shares are not counted as securities for the purposes of determining whether the former company qualifies as an investment firm. However, this does not apply if the other company is an investment firm."

Clarification of administrative practice

Please refer to the review of administrative practice in the judgment of the District Court of 3 May 2021 in cases B-1980-12 and B-2173-12.

Relevant legislation implemented after SKAT's decisions

Section 3 of the Ligningslovens

By Act No 540 of 29 April 2015, the following provision was inserted into the Equalisation Act:

"§ 3. Taxpayers shall not enjoy the benefits arising from Directive 2011/96/EU on the common system of taxation applicable in the case of parent companies and subsidiaries of different Member States, Directive 2003/49/EC on a common system of taxation applicable to interest and royalty payments made between associated companies of different Member States and Directive 2009/133/EC on the common system of taxation applicable to mergers, divisions and partial divisions, transfers of assets and exchanges of shares concerning companies of different Member States and the transfer of the registered office of an SE or SCE between Member States, as implemented in Danish law, to arrangements or series of arrangements which are organised with the main object or one of the main objects of obtaining a tax advantage which is contrary to the content or purpose of the Directives and which are not genuine having regard to all the relevant facts and circumstances. An arrangement may comprise several steps or parts.

Paragraph 2. For the purposes of paragraph 1, arrangements or series of arrangements shall be regarded as not genuine in so far as they are not organised for well-founded commercial reasons reflecting economic reality.

Paragraph 3. A taxpayer shall not obtain the benefit of a double taxation convention if it is reasonable to determine, having regard to all the relevant facts and circumstances, that the obtaining of the benefit is one of the principal purposes of any arrangement or transaction which directly or indirectly confers the benefit, unless it is demonstrated that the granting of the benefit in those circumstances would be consistent with the content and purpose of the relevant provision of the convention.

Paragraph 4. By way of derogation from paragraph 3, paragraphs 1 and 2 shall apply in determining whether a taxpayer is excluded from the benefit of a provision of a double taxation agreement with a country which is a member of the European Union if the taxpayer could alternatively rely on a benefit of one of the Directives on direct taxation."

Law No 1726 of 27 December 2018 amended Article 3 of the Equalisation Law as follows: "Article 3

Taxable companies and associations, etc., shall disregard, when determining income and calculating tax, events or series of events organised with the main purpose, or which have as one of their main purposes, the obtaining of a tax advantage which works against the purpose and intent of the tax law and which is not genuine, taking into account all relevant facts and circumstances. An arrangement may comprise several steps or parts.

Paragraph 2. For the purposes of paragraph 1, arrangements or series of arrangements shall be regarded as non-real to the extent that they are not organised for well-founded commercial reasons reflecting economic reality.

Paragraph 3. The determination of income and the calculation of tax shall be made on the basis of the real event or series of events, if events or series of events are disregarded pursuant to paragraph 1.

Paragraph 4. Paragraphs 1 to 3 shall apply mutatis mutandis to other participants in the events or series of events where the participants are taxable persons covered by Sections 1 or 2 of the Withholding Tax Act or Section 1(2) of the Death Tax Act.

Paragraph 5. Taxable persons shall not benefit from a double taxation agreement if it is reasonable to conclude, having regard to all the relevant facts and circumstances, that the obtaining of the benefit is one of the main purposes of any arrangement or transaction which directly or indirectly gives rise to the benefit, unless it is demonstrated that the granting of the benefit in those circumstances would be consistent with the content and purpose of the relevant provision of the agreement.

Paragraph 6. Paragraphs 1 to 4 shall prevail over paragraph 5 in determining whether a taxpayer is excluded from the benefit of a double taxation agreement with a country which is a member of the EU.

..."

Council Directive 2016/1164/EU of 12 July 2016 laying down rules to combat tax avoidance practices that directly affect the functioning of the internal market

The Directive states, inter alia:

"Article 1

Scope

This Directive shall apply to all taxable persons who are subject to corporate tax in one or more Member States, including permanent establishments in one or more Member States of entities which are resident for tax purposes in a third country.

...

Article 3

Minimum level of protection

This Directive shall not prevent the application of national or agreement-based provisions aimed at ensuring a higher level of protection of national corporate tax bases.

...

Article 6

General anti-abuse rule

1. In calculating the corporation tax liability, a Member State shall disregard any arrangement or series of arrangements which is organised with the main object, or one of the main objects, of obtaining a tax advantage which is contrary to the aim and purpose of the tax law in force and which is not genuine, taking into account all the relevant facts and circumstances. An arrangement may comprise several steps or parts.

2. For the purposes of paragraph 1, arrangements or series of arrangements shall be regarded as not genuine in so far as they are not organised for bona fide commercial reasons reflecting economic reality.

3. Where events or series of events are disregarded under paragraph 1, the tax liability shall be calculated in accordance with national law."

Law No 327 of 30 March 2019 on the application of the multilateral convention for the implementation of measures in double taxation agreements to prevent tax avoidance and profit shifting

This Act made applicable, with effect from 1 July 2019, the provisions of the Multilateral Convention of 24 November 2016 for the Implementation of Measures in Double Taxation Conventions to Prevent the Avoidance of Taxes and the Transfer of Profits, as set out in Annex 1 to the Act, to, inter alia, the double taxation conventions mentioned in Annex 3 to the Act, including the Convention of 17 November 1980 between Denmark and Luxembourg for the Avoidance of Double Taxation and the Provision of Mutual Administrative Assistance with Respect to Taxes on Income and on Capital. The Convention has been acceded to and is applicable in Luxembourg.

Article 7 of the Convention states:

"Prevention of abuse of agreements

Notwithstanding any other provision of a covered tax convention, no benefit shall be conferred under the covered tax convention in respect of income or capital if, having regard to all the relevant facts and circumstances, it is reasonable to assume that the obtaining of such benefit was one of the main purposes of any arrangement or transaction which directly or indirectly conferred such benefit, unless it is demonstrated that, in those circumstances, the obtaining of such benefit would be consistent with the object and purpose of the relevant provisions of the covered tax treaty."

V. Pleas in law

B-2942-13 Takeda A/S in voluntary liquidation v Ministry of Taxation Takeda A/S in voluntary liquidation submits in its summary statement of 2 August 2021, inter alia:

"In support of the main claim, it is submitted in principle that Nycomed Sweden Holding 2 AB is not subject to limited tax liability to Denmark on the interest in question, cf. SEL § 2(1)(d) in conjunction with Article 11 of the Nordic DBO and the Interest Royalty Directive (2003/49/EC). Similarly, it is argued that no other company in the group or the underlying owners are subject to limited Danish tax liability on the interest in question. Nycomed A/S (Takeda) has therefore not been obliged to withhold interest tax, cf.

In relation to the DBO, it is argued that Nycomed Sweden Holding 2 AB is the 'proper recipient' and 'rightful owner' of the interest within the meaning of Article 11 and is therefore entitled to a reduction under the Agreement (see section 7 below).

In relation to the Interest/Royalty Directive (2003/49/EC), it is also argued that Nycomed Sweden Holding 2 AB is the 'beneficial owner' of the interest.

It is further argued that the benefits of the Directive cannot be denied either on the basis of the abuse clause in Article 5 of the Directive or on the basis of the so-called 'general EU law principle of prohibition of abuse' (see paragraphs 8.6 and 8.7 below).

There is no abuse of rights in this case, either under Danish law, under the Nordic DBO or under EU law, and even if there were, Denmark has no concrete national legal basis to counter this. This plea has been addressed in particular above in the introductory section 1.3, but is also addressed below in section 7.6 (concerning the DBO) and in section 8.4 (concerning the Directive).

The fact that, in any event, the flow of interest claimed by the Treasury ended up, as mentioned, in another DBO country, Luxembourg, namely in the ultimate parent company, Nycomed S.C.A., SICAR, precludes the possibility of abuse under the Interest/Royalty Directive or under the Nordic DBO. A direct payment of interest from Nycomed A/S (Takeda) to Nycomed S.C.A., SICAR would thus, as mentioned, have been exempt from Danish withholding tax under the Danish-Luxembourg DBO.

In the event that the Regional Court should find that Nycomed Sweden Holding 2 AB is not the "rightful owner" of the interest, it is alternatively argued that the Luxembourg grandparent company, Nycomed S.C.A., SICAR, which is the only other company in the group structure to have received interest income in respect of the intra-group loans at issue, must then be regarded as the 'beneficial owner' instead (with the consequence that a reduction would have to be made under the DBO between Denmark and Luxembourg, in which case there is no abuse in the case). This plea is addressed below in section 7.7.

In support of the main contention, it is further argued that the condition for the elimination of limited tax liability in SEL § 2(1)(d), last sentence, is fulfilled. This is discussed in section 9 below.

In the alternative, it is submitted that SKAT's decision of 17 September 2010 constitutes a retroactive tightening of an established administrative practice and is therefore unlawful. This is dealt with in section 10.

In the further alternative, it is submitted that Nycomed A/S (Takeda) is not liable for any withholding tax under Section 69 of the Withholding Tax Act as Nycomed A/S (Takeda) has not acted 'negligently' by not withholding tax in relation to the interest accruals. In this respect, reference is made to paragraph 11 below.

In the event that Nycomed S.C.A., SICAR is also not considered to be the 'rightful owner' of the interest at issue, the following is submitted in support of the alternative (subsidiary) submissions,

(A) that the withholding tax requirement be reduced to DKK 0 in respect of the Swedish listed company, Shareholder No 41, and the US resident individual, Shareholder No 39, both of whom are direct shareholders of Nycomed S.C.A., SICAR, and their (indirect) share of the interest in question (approximately 1.40%), since these two persons must then be considered the 'beneficial owners' of that share; and

(B) that there is a further legal claim for a reduction of the withholding tax claim to DKK 0, to the extent that it is established during a referral to the Tax Agency that the other investors in Nycomed S.C.A., SICAR are either (i) legal persons who are the "beneficial owners" of the interest pursuant to a DBO between Denmark and their home country, or (ii) natural persons (as there is no legal basis under Danish law to levy withholding tax on interest relating to such persons).

In support of its claim that the defendant should be dismissed, the applicant submits that it has a manifest legal interest in having its alternative claim reviewed.

The pleas in support of the alternative heads of claim are dealt with in section 12 below.

6 SEL ARTICLE 2(1)(D) DOES NOT LEAD TO LIMITED TAX LIABILITY FOR INTEREST

The rule on the limited tax liability of foreign companies to Denmark of interest credited or paid by Danish companies is set out in SEL § 2(1)(d), which for the interest imputations at issue read as follows [...]:

...

Denmark has not introduced rules on limited tax liability of interest paid to individuals.

SEL § 2(1)(d) states that the limited tax liability only covers interest relating to so-called controlled debts. This condition is met in the present case.

In addition, it is a condition that the taxation of interest should not be waived or reduced under the provisions of a double taxation convention or of the Interest/Royalty Directive (2003/49/EC). Thus, if interest taxation is to be reduced under one of these legal provisions only, there is no limited tax liability to Denmark for the foreign recipient of interest.

The present case therefore primarily concerns whether this condition is met.

Takeda submits that the tax on interest must be waived or reduced both under the Nordic DTA (alternatively the DTA between Denmark and Luxembourg) and under the Interest/Royalties Directive, with the result that Nycomed Sweden Holding 2 AB is not subject to limited tax liability in Denmark in respect of the interest in question. There is therefore no basis for levying withholding tax.

...

7 CLAIMS FOR REDUCTION UNDER THE NORDIC DBO NYCOMED SWEDEN HOLDING 2 AB IS THE "LEGAL OWNER" OF THE INTEREST

7.1 General information on the DBO

It follows from Article 11 of the current Nordic Double Taxation Convention of 23 September 1996 [...] that the source State in this case, Denmark, cannot tax interest paid to a recipient in another Nordic country if the recipient of the interest is the "beneficial owner" of the interest. It is therefore the State of residence, in this case Sweden, which has the sovereign right of taxation (which Sweden has also exercised, since the interest has been taxed in Sweden).

It is submitted that Nycomed Sweden Holding 2 AB is the 'beneficial owner' of the interest in question and that Nycomed Sweden Holding 2 AB is therefore entitled to a reduction under Article 11 of the Nordic DBO. Since the reduction is to be made, there is no limited tax liability to Denmark, cf. SEL § 2(1)(d).

Article 11 of the Nordic DBO corresponds in principle to Article 11 of the 1977 OECD Model Convention [...]. "Beneficial owner" is a translation of "beneficial owner" derived from the OECD 1977 Model Tax Convention.

The concept of "beneficial owner" is neither defined in the Nordic DBO nor in the Model Agreement, and the main issue in this case concerns precisely the interpretation of this concept.

In the OECD commentary on the 1977 Model Agreement, paragraph 11, which was the commentary in force at the time of the conclusion of the DTA between the Nordic countries in 1996, it is stated [...]:

"Under paragraph 2, the limitation of taxation in the source State does not apply in cases where an intermediary, such as an agent or nominee, is interposed between the recipient and the payer, unless the beneficial owner is resident in the other Contracting State. States wishing to make this clearer are free to do so in bilateral negotiations." (Our emphasis).

Since Nycomed Sweden Holding 2 AB is neither an "agent" nor a "nominee" [...] of the parent company, Nycomed Sweden Holding 1 AB, of the ultimate parent company, Nycomed S.C.A., SICAR, or of any other person, it is clear from the 1977 Comments that Nycomed Sweden Holding 2 AB is the "beneficial owner" under the DBO.

In 2003, the OECD extended the comments to so-called flow-through entities.

The commentary was thus supplemented, inter alia, in a new paragraph 8.1 by the following third paragraph [...] (the commentary is to be found in later versions in paragraph 10):

"It would also be inconsistent with the intent and purpose of the Agreement for the source State to grant relief or exemption from tax in cases where a person resident in a Contracting State, other than as an agent or intermediary, merely acts as a conduit for another person who actually receives the income in question. For these reasons, the report of the Committee on Fiscal Affairs "Double Taxation Conventions and the Use of Conduit Companies" concludes that a "conduit company" cannot normally be considered the beneficial owner if, although it is the formal owner, it in fact has very narrow powers which, in relation to the income in question, make it a "nullity" or trustee acting on behalf of other parties." (Our emphasis).

The tax authorities' interpretation of "beneficial owner" in the present case is based on these extended comments, which has generally been accepted by the Tax tribunal in the cases in which the Tax tribunal has ruled (which is not the case here).

In the present case, the Ministry also bases its interpretation on later commentaries to Article 11, namely those issued in 2014, i.e. 7 years after the first interest in the present case.

In its judgment of 3 May 2021 in the first cases in the complex, the Supreme Court also agreed to apply the 2003 comments in question [...].

However, Takeda disagrees with the judgment of 3 May 2021 on this point.

7.2 "Beneficial owner" must be interpreted in accordance with domestic Danish law

It is submitted that the concept of "beneficial owner" must be interpreted in accordance with domestic Danish tax law.

In Danish law, the court created principle of "proper recipient of income" will apply, as also the Minister of Taxation has repeatedly confirmed [...].

It can be established without further ado that Nycomed Sweden Holding 2 AB is the 'proper recipient' of the interest in question under Danish law, as the Ministry of Taxation also acknowledges, see paragraph 50 [...] and paragraph 78 [...] of the order for reference. For this reason alone, Nycomed Sweden Holding 2 AB is also the 'legal owner' of the interest in question.

The fact that the Minister for Taxation explained to Parliament prior to the adoption of the SEL that the tax exemption is conditional on Nycomed Sweden Holding 2 AB being the 'proper recipient of income' is binding for the interpretation of the SEL, irrespective of the proper interpretation of the DBO. However, it also follows from the DBO that the concept of 'beneficial owner' must be interpreted as Danish law has defined 'beneficial owner' and here, as mentioned above, there is undoubtedly an equivalence between 'beneficial owner' and 'proper recipient of income'.

Article 3(2) of the Nordic DBO [...] and the corresponding provision in the 1977 Model Agreement [...] contain the following rule of interpretation:

"2. In the application of this Agreement in a Contracting State, any term not defined therein shall, unless the context otherwise requires, have the meaning which it has under the law of that State concerning the taxes to which this Agreement applies."

"Beneficial owner" is not defined in the Convention. The term must therefore be interpreted in accordance with domestic Danish law, "unless the context otherwise requires".

It is argued that nothing else follows from the context and that the concept must therefore be interpreted in accordance with internal Danish law, i.e. in accordance with the principle and case-law of "proper recipient of income".

This result is in line with the interpretation put forward by the Danish tax authorities prior to the start of the beneficial owner cases [...].

Takeda has of course noted that in its judgment of 3 May 2021, the Østre Landsret has observed that "the fact that the concepts of 'beneficial owner' and 'proper recipient of income' are not used in a linguistically stringent manner in the preparatory works ... is also not [found] to lead to a different result". Takeda does not agree.

Aage Michelsen, in his Festskrift til Ole Bjørn [...], expresses the following general view:

"The application of domestic law must take place in all cases where an international tax issue is not resolved in a double taxation agreement that Denmark has concluded with another country."

It is undeniable that the precise understanding of "beneficial owner" is not resolved in the Convention.

The interpretation also makes good sense in the light of the introductory remark in paragraph 8 of the 2003 Commentaries [...]:

"The beneficial ownership requirement was inserted in Article 11 to clarify the meaning of the words 'paid to a resident' as used in paragraph 1 of the Article."

The purpose of the provision has thus been to establish who is the real recipient of the interest, and this is precisely what the principle of 'proper recipient of income' in Danish tax law is all about [...].

Jakob Bundgaard and Niels Winther-Sørensen in SR-SKAT 2007.395 are in line with this [...]:

"In view of the above-mentioned Danish case law on domestic interpretation of concepts from double tax treaties, it can probably be assumed that the Danish courts will be inclined to interpret the beneficial owner concept at least to a certain extent in accordance with domestic Danish tax law. In other words, the Danish courts will be inclined to consider the company, which according to a Danish tax assessment is considered to be the proper recipient of income, to be also the beneficial owner." (Our emphasis).

The case law referred to is U 1994.284 H [...] and TfS 2003.222 H [...].

The view is repeated by Jakob Bundgaard in SU 2011.31 [...].

Jens Wittendorff in SR-SKAT 2010.212, is also of the opinion that an internal interpretation should be made based on the principle of "right income recipient" [...]. It also appears that the authorities of several other States, including the United States, the United Kingdom, the Netherlands and Italy, apply a domestic interpretation.

Furthermore, it should be mentioned that the Supreme Court also in U.2012.2337 H [...] applies domestic Danish law when interpreting a DBO.

The applicant is aware that the Østre Landsret, in the first court decision in the "beneficial owner" complex of cases (SKM 2012.121 (ISSsagen) - [...]), supported by the Indofood judgment [...], has held that an autonomous interpretation must be applied. Similarly, the Østre Landsret seems to have done in the TDC and NetApp cases (judgment of 3 May 2021, [...]).

Takeda therefore does not agree with this.

Firstly, it is particularly surprising that the Supreme Court (in the ISS case) has placed more emphasis on the Indofood judgment, which is a civil law English decision which had to assess the meaning of the concept in a case concerning the interpretation of a loan agreement in Indonesian law, than on the later Prévost case [...], which is a tax case decided by the competent court of the source State (Canada).

Secondly, it is a fact that there is no consensus in the international literature as to what an autonomous interpretation should be, if any.

A review of the available literature thus shows that there is total uncertainty as to what constitutes a "rightful owner" under an autonomous interpretation. There is simply no consensus on an "international fiscal meaning".

Thirdly, there is also no consensus in the international literature as to whether an internal law interpretation or an autonomous (international) interpretation should be applied.

...

Fourthly, the (limited) international case law is not unambiguous either. The Indofood judgment [...], as mentioned above, seems to favour an international, autonomous interpretation, whereas the Prévost case [...] seems to favour an internal interpretation.

The OECD, in its public discussion draft of 29 April 2011 [...], has proposed to include in the commentary to Article 10 (on dividends) that "beneficial owner" should be subject to an international interpretation, but the consultation responses of The City of London Law Society [...] and IBFD [...] dispute that there is coverage in Article 3(2) for this position.

In the light of the responses received, the OECD issued on 19 October 2012 [...] a new draft revised commentary on "beneficial owner", in which, taking into account that a majority of the responses supported this view, the OECD maintained its approach of subjecting the concept to an autonomous interpretation. This in itself shows that the OECD is on "thin ice" and that, notwithstanding the OECD's political wishes, there was and is still considerable disagreement on the issue.

That the 2014 Commentary's paragraph 10 [...] and the 2017 Commentary's paragraph 10 [...], as a result of political deliberations by the officials drafting the Commentary, point in the direction of an autonomous interpretation of the concept does not alter the fact that, at least in 2007-09, there was not (and to the extent that there has not been since) the necessary international consensus on the understanding of the concept for autonomous interpretation to make sense at that time.

Moreover, interpreting the concept of "beneficial owner" in line with the concept of "proper recipient of income" under Danish law is a necessity where, as here, it is not a question of interpreting the Agreement but of interpreting Danish law (SEL § 2(1)(d)), which refers to the Agreement, since it is not a question of sharing a tax right with Sweden but of defining a tax exemption which relates solely to Denmark's internal tax relations. This is particularly evident when the preparatory works to SEL § 2(1)(c) and (d) unambiguously confirm that the Danish concept of 'proper recipient of income' is synonymous with the concept of 'beneficial owner'.

Even if it were obvious that the drafting of the preparatory works to SEL § 2(1)(c) in 2001 was mistaken as to the meaning of the term in the Model Agreement, the Danish preparatory works would still prevail over the Agreement, since it was this understanding that the Danish Parliament relied on when adopting SEL § 2(1)(c) and subsequently when adopting SEL § 2(1)(d).

Nor is an interpretation in conformity with the Convention relevant, since Denmark has not promised Sweden to make its internal tax exemption of interest dependent on the understanding of the DBO. This is a choice made by Denmark itself, and Sweden is not obliged under the Treaty to adapt its internal legislation to the Agreement. The only decisive factor is what the Danish Parliament assumed when it adopted SEL § 2(1)(c) and (d).

It is thus submitted that domestic law must in any event be applied where, as in the present case, no other international understanding of the concept can be pointed to. And this is particularly true at the time of the interest accruals at issue in the case, 2007-09, and even more so when it is taken into account that the Nordic DBO was concluded in 1996 (even replacing an earlier DBO which contained a similar provision).

Since it is agreed that Nycomed Sweden Holding 2 AB is the "rightful recipient of income" under Danish law, it is also the "rightful owner".

7.3 The 2003 OECD Extended Commentary cannot be relied upon for interpretation

It is a fact that the amended interpretation of "beneficial owner" by the Ministry of Taxation is directly prompted by - and originally based solely on - the 2003 extended comments to the Model Tax Convention (on "flow-through companies"). Since then, the Department has also relied on even more recent commentaries, including those from 2014, see section 7.5 below.

Denmark's DBO with the other Nordic countries [...] dates from 1996 and Article 11 of the Agreement corresponds to the OECD Model Agreement. When Denmark and the other Nordic countries concluded the agreement, only the 1977 OECD commentary on the model agreement [...] was available.

It is generally accepted nationally and internationally that the OECD commentary on the Model Agreement can be taken into account when interpreting specific DBOs.

As regards the legal value of the OECD commentaries, see Aage Michelsen's article in Festskrift til Ole Bjørn [...], and Michael Lang [...], both with references to a number of international authors. It appears from this that if later comments represent a change from earlier versions and not merely a clarification, these comments cannot be given weight, see similarly Vogel, 3rd edition [...]. It is clear that what is being discussed by these authors is the problem of treaty interpretation in a dispute between two States. The authors do not address the legal certainty issues that arise when an OECD commentary clarifies or modifies a DTA which, as in the case of Denmark, has allowed taxpayers to rely on a DTA provision through domestic legislation. The protection of taxpayers against retroactive legislation and interpretation depends on domestic (constitutional) law and is a fundamentally different issue from the interpretation of a treaty between two states.

Danish case law alone has accepted that clarifying comments may be relevant to the interpretation of a DBO, see e.g. U.1993.143H (Texaco) [...], U.1994.284H (Professorreglen) (MS 789) and U.2003.988H (Halliburton) [...]. See also the settlement agreement of 3 February 2000 between the Ministry of Taxation and Casino Copenhagen. The settlement is reproduced in SU 2000.241 [...].

It is argued that the extended comments of 2003 relied upon by the Ministry of Taxation, at least as they are claimed to be understood by the Ministry, represent a significant change from the 1977 comments, since they lead to the exact opposite result of what the Ministry relied upon in the preparatory works to SEL § 2(1)(c) in 2001. They cannot therefore be taken into account in interpreting the 1996 Nordic DBO.

The reason why subsequent comments cannot be given weight is that they have not been approved by the Member States' parliaments and consequently lack democratic legitimacy.

This is particularly clear in a legal system such as the Danish one, where a double taxation agreement only becomes part of Danish law once the Folketing has passed a law to that effect. It would simply be contrary to the prohibition of delegation in Article 43 of the Constitution to leave legislative competence to the officials, including officials from the tax administrations of the individual countries, who formulate the commentaries.

The fact that the interpretation of a DBO has the wider significance of determining whether there is a limited tax liability at all under SEL § 2(1)(c) and (d) further underlines that the clear preamble to this provision cannot be overridden by an amendment to the OECD commentary. Since SEL § 2(1)(c) and (d) are internal provisions which define their internal scope by reference to an international treaty, even duly agreed amendments to the treaty could not be given effect to internal law unless the treaty amendment and its effect on internal law were agreed by the Folketing, since an amendment to internal Danish law merely by the Government's agreement to a treaty amendment would imply a flagrant violation of the delegation prohibition in § 43 of the Basic Law. It is all the more obvious that internal Danish law is not changed by some officials agreeing, through the OECD, to an amendment of the commentaries to the OECD Model Convention.

The significance of OECD commentaries which have emerged after the relevant agreement has been concluded cannot be determined in isolation from the effect which the commentary has on the case before the court. To the extent that a subsequent comment leads to the opposite outcome of a case, there will clearly be a change and no weight can be given to the comment.

In the ISS case (SKM2012.121.ØLR), the Østre Landsret held in paragraphs [...] that the OECD comments of 2003 constituted a mere clarification, but at the same time held that the comments had no bearing on the outcome of the case in question (see the words "In this case it is unnecessary to take a position on...", [...]).

Similarly, when Jakob Bundgaard and Niels Winther-Sørensen in SR-SKAT 2007.395 assume [...] that the 2003 commentaries are "clarifications", this is because they also assume that the commentaries "cannot be regarded as particularly far-reaching", since the authors assume [...] that, in accordance with the tax authorities' previous interpretation, "beneficial owner" must be interpreted in accordance with the principle of "proper recipient of income" under Danish law. Under this assumption, the new comments do not, of course, represent a change.

In its judgment of 3 May 2021, the Østre Landsret does not directly address the issue, but it follows from the grounds of the Landsret that the Landsret has not found that the subsequent comments are amendments to the commentaries. Takeda, as indicated, does not agree (if this leads to the effect that the dividend/interest recipient is not considered the "beneficial owner" under the more recent commentaries).

It is contrary to Articles 31 and 32 of the Vienna Convention [...] to give weight to subsequent commentaries.

In particular, these cannot serve as a "subsequent agreement" within the meaning of Article 31(3)(a), see Michael Lang [...]: ...

Nor are subsequent observations 'supplementary means of interpretation' within the meaning of Article 32, see Michael Lang [...]: ...

The fact that the OECD officials themselves, in paragraph 35 of the Introduction to the 2003 OECD Model Agreement [...], have expressed the view that amendments to the commentaries should be applied in the interpretation of earlier agreements does not alter the above conclusion, see Michael Lang [...]: ...

See also Aage Michelsen with references [...]: ...

In line with this, subsequent commentaries in Danish case law have only been used as an interpretative contribution when clarifications have been required, see the Supreme Court judgments in UfR 1993.143 H (Texaco) [...] and TfS 2003.222 H (Halliburton) [...] already mentioned.

The conclusion is therefore that the extended comments of 2003 do not make a relevant contribution to the interpretation of the Nordic DBO. Nycomed Sweden Holding 2 AB is therefore - for this reason alone - the 'legal owner' and there is therefore no limited tax liability.

7.4 Nycomed Sweden Holding 2 AB is also the "beneficial owner" of the interest after the 2003 Comments

However, in case the 2003 Extended Comments are considered to be merely a clarification of the concept of 'beneficial owner', it is further argued that Nycomed Sweden Holding 2 AB should also be considered as the 'beneficial owner' of the interest in question under the 2003 Extended Comments.

Thus, Takeda submits also in this case that the concept of 'beneficial owner' must be interpreted in accordance with the principle of 'proper recipient of income' in Danish law, see, inter alia, Jakob Bundgaard and Niels Winther-Sørensen in SR-SKAT 2007.395 [...].

However, even if an autonomous interpretation of the concept is made, it is argued that Nycomed Sweden Holding 2 AB must be considered as the 'rightful owner' of the interest in question according to the 2003 Commentaries.

In the 2003 revision, paragraph 8 of the Commentaries (on Article 11 on interest) was inter alia expanded by the remark that the term 'beneficial owner' is not used in a narrow technical sense, but has to be seen in the context and in the light of the object and purpose of the Agreement, including the avoidance of double taxation and the prevention of tax evasion and avoidance.

This is elaborated in point 8.1 by the fact that, firstly, it would not be in accordance with the object and purpose of the Convention if the source country were to grant relief for a payment to an "agent or nominee", since the latter is not the owner of the income and is therefore not taxed in his country of residence and no double taxation arises. This corresponds to the commentary on the 1977 Model Tax Convention.

Secondly, the third indent of point 8.1 makes a new reference to "flow-through" companies, see also section 7.1 above:

"It would also be inconsistent with the object and purpose of the Agreement for the source State to grant relief or exemption from tax in cases where a person resident in a Contracting State, otherwise than as an agent or intermediary, merely acts as a conduit for another person who actually receives the income in question. For these reasons, the report of the Committee on Fiscal Affairs "Double Taxation Conventions and the Use of Conduit Companies" concludes that a "conduit company" cannot normally be considered the beneficial owner if, although it is the formal owner, it in fact has very narrow powers which, in relation to the income in question, make it a "nullity" or trustee acting on behalf of other parties." (Our emphasis).

The Treasury generally argues in this case that paragraph 8.1 of the 2003 Expanded Commentaries should be read as meaning that, in determining whether the formal recipient of the amount is a "beneficial owner", the only consideration is the extent of the formal recipient's real powers in relation to deciding how to dispose of amounts received. According to this view, the formal recipient of the sums received cannot be regarded as the "beneficial owner" if, in respect of the income in question, he cannot in fact make any dispositions which differ from the will of the ultimate owners (that a sum received should be "directed to where it is desired").

It should be noted in this respect that the wording of point 8.1 clearly enumerates 3 situations in which a recipient of interest is not a "beneficial owner", namely if he is (1) an "agent", (2) an "intermediary" or (3) a "conduit for another person who actually receives the income in question". In the latter situation, it is further required that the conduit has "very narrow powers which, in relation to the income in question, make it a 'nullity' or trustee acting on behalf of other parties".

However, in the present case, there has been no interest flow at all from the beneficiary, Nycomed Sweden Holding 2 AB, to Nycomed Sweden Holding 1 AB or to any other person.

The fact that Nycomed Sweden Holding 2 AB has made group contributions to Nycomed Sweden Holding 1 AB does not change this. First, the interest receivable has existed irrespective of the provision of group contributions and the group contributions have thus not prevented Nycomed Sweden Holding 2 AB from disposing of the interest by converting it into equity in the context of the Exit in 2011. In addition, the group contributions in question were never actually paid to Nycomed Sweden Holding 1 AB, as this company forgave the group contribution debt upon the Exit.

Nycomed Sweden Holding 2 AB, which is fully equity financed, has thus granted the loan to Nycomed A/S (Takeda) from its own funds and the interest has accrued solely to Nycomed Sweden Holding 2 AB. Nycomed Sweden Holding 2 AB has always been the owner of the interest, which has been continuously credited to the principal (thereby allowing Nycomed Sweden Holding 2 AB to receive higher interest payments (rentes rente)). And the interest receivable has existed until 21 September 2011, when Nycomed Sweden Holding 2 AB elected to convert the receivable into new shares, which were part of the transfer to Takeda Pharmaceutical Company. At that time, Nycomed Sweden Holding 2 AB recorded a higher share profit than if the debt and interest had not been converted before.

The above shows that the company has benefited fully from the interest.

Takeda further submits that the fact that the proceeds from the sale of Nycomed A/S (Takeda) have been distributed from Nycomed Sweden Holding 2 AB to Nycomed Sweden Holding 1 AB in late 2011 and in 2012 in connection with the 'Exit' of the owner consortium (and further up to Nycomed S.C.A., SICAR and the owners of this company) cannot be considered as a flow through of the interest in question. Thus, these funds do not originate from the interest debtor, the claimant company Nycomed A/S (Takeda), but from the independent purchaser of the Nycomed group, Takeda Pharmaceutical Company.

There appears to be agreement between the parties on this point, as stated in the Treasury's procedural document A (p. 3), which states [...]:

"Takeda's statement that Nycomed S.C.A., SICAR has made repayments of paid-in capital as well as distributions of proceeds to its investors in connection with capital reductions in 2011 and 2012 (see Order for Reference, p. 48) is disputed as undocumented, as is the fact that such

payments, there was a 'pass-through' of the interest in question. (emphasis added).

For these reasons alone, Nycomed Sweden Holding 2 AB is not a 'pass-through' company.

Even if it were to be assumed that there has been a 'pass-through' of the interest in question through Nycomed Sweden Holding 2 AB to Nycomed Sweden Holding 1 AB and beyond, it is noted that, as further stated in the commentaries to the Model Agreement, the extent of the right of disposal is an essential element in assessing whether a pass-through company is the 'beneficial owner' of the income.

The point of the commentary is thus that if the interest-receiving company here Nycomed Sweden Holding 2 AB has channelled the interest received to the underlying owners, the assessment of whether the company is a 'beneficial owner' must take into account whether this is a result of the underlying owners having restricted the company's disposal of the interest.

In this respect, it is argued that Nycomed Sweden Holding 2 AB has been able to dispose of the interest receivable throughout the period until 2011, and any creditors of Nycomed Sweden Holding 2 AB have been able to seek satisfaction accordingly. And upon conversion, the interest amount became part of the equity of Nycomed A/S (Takeda).

Takeda thus argues that Nycomed Sweden Holding 2 AB does not have 'very narrow powers which, in relation to the income in question, make it a "nullity" or "trustee acting on behalf of other parties"'.

On the contrary, Nycomed Sweden Holding 2 AB has had essentially the same powers as any other holding company in any other group would normally have.

In particular, there has been no legal obligation for Nycomed Sweden Holding 2 AB to pass on the interest received to Nycomed Sweden Holding 1 AB, as further explained in the next section. As will be seen, inter alia, from that paragraph, it is a condition for not considering a recipient of interest as a 'legal owner' that it has assumed a legal obligation to pass on the interest received.

In this respect, it is contested that the mere fact that the underlying owners or their representatives may have taken the overall decision on the cash flows, including the attribution of interest to Nycomed Sweden Holding 2 AB and the payment of group contributions by this company to Nycomed Sweden Holding 1 AB, should imply that Nycomed Sweden Holding 2 AB cannot be considered as the 'legal owner' of the interest.

All major decisions in any group - e.g. on acquisitions of companies, major distributions, establishment of financing structure, etc. - are usually taken in the first instance by the top management of the group.

Subsequently, decisions are implemented by the relevant corporate bodies of the respective companies. Neither the individual companies as such nor the individual members of the management are in principle obliged to implement the planned decisions, but refusal to do so may of course lead to the replacement of the members concerned in accordance with the rules of company law.

There is no basis for interpreting point 8.1 of the commentary as meaning that what is a customary decision-making procedure in any group automatically disqualifies the group's subsidiaries from being 'beneficial owners' of interest received from intra-group loans.

The reality is that the Treasury's interpretation of paragraph 8.1 of the commentary is so restrictive that it is difficult, if not impossible, to point to an intermediate holding company that the Treasury would accept as the 'beneficial owner' of interest.

Accordingly, the only (real) condition to be imposed, in the view of the Ministry of Taxation, in order to deprive an intermediate holding company of the status of 'beneficial owner' would seem to be that it must be shown or be probable that the transaction has as its object or consequence the avoidance or evasion (or 'abuse') of tax.

The Treasury's view is thus in effect that if an abuse can be demonstrated, an intermediate holding company will never be a 'beneficial owner' and thus, according to the Treasury's own interpretation, there is no real substance to the 'narrow powers' requirement.

The Treasury's interpretation of the concept of 'beneficial owner' must therefore be rejected in its entirety as meaningless.

Indeed, the Ministry's interpretation is clearly at odds with the Minister's answer to Question 86 on L 213 of 22 May 2007 [...]: ...

In conclusion, it is submitted that Nycomed Sweden Holding 2 AB cannot be regarded as a 'nullity or administrator'.

The applicant's understanding is supported by the judgment of the Supreme Court of 20 December 2011 in the ISS case, where the Court stated [...]:

"For such an intermediate holding company not to be considered a legal owner, it must be required that the owner exercises a control over the company which goes beyond the planning and management at group level which usually occurs in international groups".

The Ministry of Taxation has not demonstrated that there is such special qualified control on the part of the owners in the present case.

The applicant's understanding is further supported by recent international case law, including the judgment of the Federal Court of Appeal of Canada of 26 February 2009 in the leading case, Prévost [...], although it is recognised that international case law on the understanding of the concept of 'beneficial owner' is not unambiguous.

...

7.5 2014 comments there must be a legal obligation to pay on

While this case has been pending, new comments have been issued by the OECD, namely in 2014 [...], which are also invoked by the Ministry of Taxation in support of the view that Nycomed Sweden Holding 2 AB is not the 'legal owner' of the interest in question.

Takeda submits that paragraph 10.2 of the 2014 commentary now explicitly states that, as a general rule, in order to deprive a recipient of interest of the status of 'beneficial owner' under the Model Tax Convention, there must be an obligation to pass on the interest to another person. It thus states [...]: ...

In Takeda's view, it has always been clear that the existence of a legal obligation to pass on the interest is a necessary but not sufficient condition for depriving a recipient of interest of the status of 'beneficial owner' under the Model Agreement. It is also confirmed in the leading judgment, Prévost, of 2009 [...], referred to above in section 7.4.

An "agent or intermediary", as mentioned in the 1977 commentaries, is thus clearly obliged to pass on the interest received. The very fact that he is an 'agent or intermediary' is sufficient. The same applies to a "conduit" in the 2003 comments.

In the view of the Ministry of Taxation, it is irrelevant on what basis the obligation exists, but the term 'obligation' (to pass on) cannot be qualified. Either the obligation exists or it does not. The relevant test is whether the obligation can be enforced before the national courts. Thus, if someone other than the recipient of the interest has a legally enforceable claim to the interest, there is an obligation on the recipient to pass on the interest.

In the present case, there has been no legal obligation on Nycomed Sweden Holding 2 AB to pass on the interest.

The Ministry of Taxation refers to the 2014 Commentary's comments that the recipient - without having been bound by a contractual or legal obligation to pass on the interest received to another person - did not 'substantially' have the rights to 'use and enjoy' the interest.

In contrast, Takeda argues that on this point, if the 2014 Commentaries are to be understood as claimed by the Treasury, they completely change the previous commentaries on the provision 7 years after the first interest attribution in the present case and thus undoubtedly represent an expansion, not a clarification, of the "beneficial owner" concept in the 1977 Commentaries. They cannot therefore be applied to the interpretation of DBOs concluded before 2014. The DBO between Denmark and the other Nordic countries relevant to the present case was concluded in 1996.

Finally, it is submitted that the meaning of that statement in the commentaries is entirely uncertain and that, in any event, it would therefore be contrary to general principles of legal certainty to attach any significance to that statement.

The Ministry of Taxation attaches great importance to the fact that Takeda has not provided any written agreements or similar evidence showing that Nycomed Sweden Holding 2 AB or Nycomed S.C.A., SICAR was not restricted in its right to dispose fully of the interest in question in respect of the loan between that company and Nycomed Sweden Holding 1 AB.

The fact is that there are no agreements limiting Nycomed Sweden Holding 2 AB's (or Nycomed S.C.A., SICAR's) right to dispose of the interest accrued, let alone any agreements or the like relating to the intra-group loans at all, other than the loan documents themselves (which, by their very nature, do not contain any limitations). The Treasury seems to be of the opinion that there must be agreements between the underlying shareholders on the question of the disposal of the interest, e.g. an obligation to pay it on. But there are not.

Thus, the question and decisions of disposition have been an integral part of the responsibilities and work of the capital fund manager (the general partner of Nycomed S.C.A., SICAR) (of course with final decision-making powers in the individual companies) and this is linked to the fact that the owners have not granted loans to the underlying companies, including Nycomed S.C.A., SICAR. On the other hand, there have of course been contractual obligations to repay the capital paid in and to pay out the proceeds of the sale in the event of an exit.

Takeda has submitted in the case the Shareholders' Agreement between the shareholders of Nycomed S.C.A., SICAR [...], which shows that no provisions have been made with regard to the intra-group loans. Takeda has also submitted minutes of the board meetings where the decision to grant the loans in question was taken (E 267-293). No restrictions are mentioned in these either.

7.6 There is no abuse of the Nordic DBO

...

Takeda disputes, however, that there is an abuse of the Nordic DBO in the present case.

The remedy of abuse requires that there is a legal basis for it in Danish law.

The parties to the present case agree that in 2007-09 there were two court-made rules to counter abuse, namely the reality principle and the 'proper recipient of income' principle, see paragraph 7578 of the order for reference [...].

It is common ground between the parties that the principle of the protection of the rights of the defence does not provide a basis for setting aside the dispositions made in the present case, see paragraph 76. Similarly, the parties agree that the recipient of the interest, Nycomed Sweden Holding 2 AB, is the 'proper recipient of income' under Danish law, see paragraph 78.

During the preparation of the case, the Ministry of Taxation put forward a new argument to the effect that Danish case-law had developed general principles for countering abuse which went beyond the principle of fact (and must be understood to mean the principle of the 'proper recipient of income'). Takeda has set out below in paragraph

8.4.1.3 rejects this argument.

It is therefore a fact that there were rules in Danish law to counter abuse and that those rules lead to the conclusion that there is no abuse under Danish law in the present case. Moreover, it is settled Supreme Court case-law that there can be no abuse if it is clear from the preparatory works that the legislature was fully aware of the issue at stake (which is the case in the present proceedings), see U.2004.174H (Over-Hold ApS) [...] and U.2007.736H (Finwill ApS "elevator case") [...].

There were no relevant anti-abuse rules in the current Nordic DBO.

On the contrary, Article 11 of the DBO contains the provision that the interest recipient must be the "beneficial owner", on which see section 7.1 7.5 above.

The absence of abuse of the agreement is confirmed, inter alia, by the fact that the chosen structure of a 'deposited' intermediate holding company/flow-through company is directly indicated by the Minister for Taxation in his reply to Question 16 of L 99 of 10 November 2000 as a legitimate structure in the context of dividend distributions [...] and thus also in the context of interest payments, since the same condition (of 'beneficial ownership') applies in both situations.

This is fully in line with Mogens Rasmussen and Dennis Bernhardt, both of the Danish Customs and Tax Administration, in SR-SKAT 2000.315 [...]: ...

There was general agreement among Danish authors on these views.

In addition, the purpose of the interest payments in question was not to pass them on to persons resident in countries without a DBO, cf. inter alia the ISS judgment [...], since the "flow-through", if such is found to have occurred, stopped in any event in a company in another DBO country, namely in Nycomed S.C.A., SICAR, Luxembourg. The purpose was therefore in no way to engage in treaty shopping.

In this respect, the ISS judgment is fully followed by the judgment of the Østre Landsret of 3 May 2021 in the NetApp case [...], in which the Landgericht held that there was no basis for finding an abuse where it was clear that the funds were intended to end up in a company located in another DBO country (in this case the United States). And in the NetApp case, the "flow-through" funds had even "passed through" a company in a non-DBO country. The judgment is discussed in more detail below.

...

It is a fact that the chosen financing structure implies that Nycomed A/S (Takeda) receives an interest deduction in Denmark and that Nycomed S.C.A., SICAR receives an interest of roughly the same amount (although on a completely different loan) which is not taxable in Luxembourg. This "hybrid" situation was thus one of the purposes of the loan structure chosen in this case, and hence the tax advantage obtained. However, it should be borne in mind that this was not the main purpose of the loan. The main purpose was to redeem the existing external loan (the bonds) and the loan was not established merely to 'obtain' an interest deduction right in Denmark. The interest deduction thus already existed, even with a rate of return which, over the period, would have been higher than that for the internal loan. It should also be noted that the tax advantage in question would also have existed if a loan agreement had instead been concluded directly between Nycomed S.C.A., SICAR and Nycomed A/S (Takeda). It is thus not made possible by the Swedish intermediate companies.

It is unclear to Takeda whether the Ministry of Taxation argues that the fact that the interest is tax-free in Luxembourg should have any bearing on whether Nycomed Sweden Holding 2 AB is the 'legal owner' of the interest. Takeda, on the other hand, submits that the question whether Nycomed S.C.A., SICAR is taxed on the interest is entirely irrelevant to the question whether Nycomed Sweden Holding 2 AB is the 'beneficial owner' of the interest.

However, even if the financing structure in question with interest deduction without interest taxation in return could be considered to constitute an abuse of rights (which in any event is at the earliest, and possibly has been, provided for by Denmark's implementation of the EU Anti-Abuse Directive in 2018, see further below), the appropriate sanction is not to levy withholding tax on the interest, but rather to deny the right to deduct the interest in Denmark, in accordance with the principle laid down in Section 3 of the Danish Equalisation Act [...].

If there had been any reason to believe that Denmark would levy withholding tax on the interest in question under the construction chosen, the group could therefore have chosen, as a perfectly valid alternative solution, to have Nycomed S.C.A., SICAR, grant the loan directly to Nycomed A/S (Takeda), which would thus have been protected under the DBO between Denmark and Luxembourg.

This fact that the alleged 'flow of interest' stops in Nycomed S.C.A., SICAR, Luxembourg also implies that there is no basis for an assumption that Nycomed A/S (Takeda) would have abused the Nordic DBO.

This follows directly from the judgment of the Østre Landsret of 3 May 2021 concerning NetApp, as regards the dividends which were actually distributed from NetApp Denmark to NetApp Cyprus and on to NetApp USA (through NetApp Bermuda). ...

It should also be noted that it was not until the BEPS project ("Base Erosion and Profit Shifting Project"), launched in 2013, and the publication in 2015 of Action 6, "Preventing the Granting of Treaty Benefits in In-appropriate Circumstances" [...], that the OECD proposed the introduction of a general abuse rule in States' DBOs to effectively counter treaty shopping. ...

This initiative was followed by the conclusion in 2016 of the Multilateral Convention ("MLI") by a large number of Member States, including Denmark, which gave participating States the opportunity to amend their existing DBOs in several areas, including by inserting these anti-treaty-shopping rules. In Denmark, the MLI was adopted by the Folketing in 2019 [...].

It is thus only in 2019 that general anti-abuse rules have been inserted in the existing Danish DBOs, including in the Nordic DBO.

7.7 In the alternative, Nycomed S.C.A., SICAR is the "rightful owner" of the interest and is entitled to a reduction under the Danish-Luxembourg DBO, therefore no abuse in the case

...

Under Article 11(1) of the DBO, the following applies [...]: ...

Thus, if Nycomed S.C.A., SICAR is considered as the 'beneficial owner' of the interest, it follows directly from the DBO that Denmark cannot tax the interest and it thus follows explicitly from SEL § 2(1)(d) that the tax on interest is waived (since the taxation of the interest is to be waived under a DBO).

...

7.7.1 The legal consequences of considering Nycomed S.C.A., SICAR as the "legal owner" of the interest

...

In any event, in order to consider Nycomed Sweden Holding 2 AB as a 'flow-through' company and thus as a limited taxpayer of the interest in question, it is a condition that the 'flow-through' has been made to investors who are not protected by a DBO.

Thus, in its judgment of 20 December 2011 (ISS judgment, MS 931), the Supreme Court held that in order not to recognise the immediate recipient as the 'beneficial owner', the funds must have actually flowed to persons or companies not protected by a DBO.

...

If the funds are considered to have flowed through the two Swedish companies, they have been passed on to Nycomed S.C.A., SICAR in Luxembourg. The funds have thus not been channelled to 'persons in third countries without a double taxation agreement'.

Furthermore, the Østre Landsret (Supreme Court) has similarly in its judgment of 3. May 2021 [... ] in one of the first two pilot cases in this complex of cases, the NetApp case, found that there was no basis for a presumption of an abuse of the DTA between Denmark (where the company distributing the dividend was resident) and Cyprus (where the company receiving the dividend was resident), since it was established in the case that the dividends were in fact paid from Cyprus to Bermuda and from there on to the ultimate parent company in the US where the funds ended up (and where this parent company was protected by the Danish-US DBO).

...

Applied to the present case, the fact that the alleged "interest flow" stops in Nycomed S.C.A., SICAR Luxembourg i.e. in another DBO country implies that the establishment of the Swedish companies did not constitute an abuse of the Nordic DBO, since the interest could have been paid directly to Nycomed S.C.A., SICAR without Danish withholding tax. According to this legal position, it is therefore the Nordic DBO which has the effect of eliminating the interest withholding tax, since there is no abuse of the Nordic DBO if Nycomed S.C.A., SICAR Luxembourg is considered to be the "rightful owner" of the interest.

Whether the Danish withholding tax is waived on the grounds that in the specific situation the Danish-Luxembourg DBO is directly applicable, as Takeda sees it, or on the grounds (as adopted by the Østre Landsret in NetApp, and which is in line with the view of the Ministry of Taxation) that the existence of (and protection under) the Luxembourg-Denmark DTA means that there is no abuse of the Nordic DTA, appears to be "a dispute over words" which does not need to be pursued further.

...

The Ministry of Taxation normally requires that, in order to recognise a person as the 'beneficial owner' of an interest (or dividend) received, it must be shown that the income was intended in advance to flow to that person, that the income actually flowed there, that the person had real control over the income and that the person did not himself act as a 'pass-through entity' in relation to the funds in question.

Against this background, these points will be examined below and the examination will show that Nycomed S.C.A., SICAR fulfils all the conditions to be considered as the (alternative) 'beneficial owner' of the interest.

7.7.2 The interest was destined to flow to Nycomed S.C.A., SICAR

...

Thus, if the Court emphasises that a chain of receivables was created through the Swedish companies in the context of the interest imputation, it stands to reason that Nycomed S.C.A., SICAR was then also predetermined to be the ultimate owner of the chain of receivables. As mentioned [...], it was also the whole purpose of the loan structure to create an intra-group loan on the basis of equity contributed to Nycomed S.C.A., SICAR with (continued) interest deduction rights in Nycomed A/S (Takeda) and no taxation elsewhere in the group. The "interest flow" from Nycomed A/S (Takeda) has thus ended up in Nycomed S.C.A., SICAR, as intended (thus disregarding Nycomed Sweden Holding 2 AB as "legal owner", even though no interest has been credited between the Swedish companies and even though no effective payment of interest has been made as a result of conversion etc., see inter alia section 7.1 7.5 above).

7.7.3 The interest actually flowed to Nycomed S.C.A., SICAR

...

If the Court were to find that Nycomed Sweden Holding 2 AB is not the "legal owner" of the interest attributed to Nycomed A/S (Takeda)'s debt to Nycomed Sweden Holding 2 AB, this must necessarily be due to the fact that, as mentioned in the previous paragraph, the Court considers that this interest was transferred from Nycomed Sweden Holding 2 AB to Nycomed Sweden Holding 1 AB through the group contribution (which was admittedly never actually paid) and that Nycomed Sweden Holding 1 AB subsequently passed on the interest to Nycomed S.C.A. for tax purposes, SICAR due to the interest accrual on Nycomed Sweden Holding 1 AB's debt to Nycomed S.C.A., SICAR.

In view of the above, it can be concluded without further ado that, in the event that Nycomed Sweden Holding 2 AB is not considered the 'beneficial owner', the interest was passed on to Nycomed S.C.A., SICAR for tax purposes.

7.7.4 Nycomed S.C.A., SICAR has effectively been able to dispose of the interest

On this point, too, it is clear that Nycomed S.C.A., SICAR had the right to dispose of the interest if it did not have that right with the two Swedish companies.

Thus, there was no prior agreement or understanding as to what Nycomed S.C.A., SICAR was to use the interest or the receivable on the interest. The fact of the matter was that the underlying owners of Nycomed S.C.A., SICAR (who by their very nature must be the 'more alternative' 'beneficial owners' of the interest, if not Nycomed S.C.A., SICAR, see below in paragraph 12) had not made loans to the company, but had instead contributed equity and therefore had no interest income.

In addition, the very establishment and administration of the intra-group loan was an integral part of the responsibilities and work of the capital fund manager (the general partner of Nycomed S.C.A., SICAR) (with, of course, final decision-making powers in the individual companies). It was therefore the general partner (and therefore the company itself) which took the actual decisions in this respect.

In this connection, it should be noted that interest earned on an intra-group loan does not create any economic value within a group. Admittedly, there is interest income in the creditor company (here Nycomed S.C.A, SICAR), but this is offset by a corresponding interest expense in the debtor company (here Nycomed A/S (Takeda)). On a consolidated basis, it thus goes to 0. The only advantage of an intra-group loan (in terms of value creation) is if a tax advantage can be obtained because the deductibility of the interest expense exceeds the taxation of the interest income. This creates a tax saving in the group, which ultimately benefits the owners (as after-tax profits are improved). Thus, the owners also have no desire to have any control over the interest on such an intra-group loan further down the structure.

What actually happened was that Nycomed S.C.A., SICAR lent EUR 498,5 million to the Swedish ultimate parent company [...] as of 27 December 2006. As interest accrued on the loan, Nycomed S.C.A., SICAR chose to leave the interest due as an additional loan at market rates to the debtor, Nycomed Sweden Holding 1 AB, so that the interest from 2007, 2008 and 2009 respectively was added to the receivable of Nycomed Sweden Holding 1 AB, [...]. There is no substantive evidence to support that Nycomed S.C.A., SICAR was not free to dispose of the interest receivable and any instalments thereon during this long period. In fact, the company has benefited fully from the interest, since the addition to the loan increased the interest rate in the following year (interest rate).

In addition, the asset constituted by the interest receivable belonged in reality to Nycomed S.C.A., SICAR, and any creditors of Nycomed S.C.A., SICAR could, if necessary, have been satisfied by the interest receivable.

Only in the context of the sale of the Nycomed group in 2011 and the 2012 Exit was the loan repaid [...].

Nycomed S.C.A., SICAR then carried out a series of capital reductions with the repayment of paid-in capital and the transfer of the proceeds from the repayment of the loan and the proceeds from the sale of the Nycomed Group. Only at this stage and as a result of the divestment of the Nycomed Group in 2011 and 2012 were the funds transferred to Nycomed S.C.A., the capital owners of SICAR. Incidentally, long after the SKAT decision under appeal in this case was taken.

The fact that Nycomed S.C.A., SICAR, several years after becoming the owner of the interest claim, sold its investments and transferred the proceeds of the redemption of the claim, together with the other proceeds of the sale of the Nycomed group, to its shareholders, cannot be used to justify the fact that Nycomed S.C.A., SICAR was not the real owner 'rightful owner' of the interest (if the Swedish companies were not).

Indeed, as explained in more detail in the following section, the Ministry of Taxation has itself noted that the fact that Nycomed S.C.A., SICAR, in the context of the sale of the Nycomed group in 2011 and 2012, carried out a capital reduction involving the repayment of paid-in capital and the transfer of the proceeds from the sale of Nycomed A/S (Takeda) to the capital owners cannot be equated with a further payment of the disputed interest.

Nycomed S.C.A., SICAR was of course not in control of whether and when it would succeed in divesting the Nycomed group. Therefore, until the sale was completed, it remained quite uncertain when Nycomed S.C.A., SICAR would be able to distribute any proceeds to its shareholders and whether there would be any proceeds to distribute at all.

If the Ministry of Taxation claims that there were in fact agreements, understandings or the like which precluded Nycomed S.C.A., SICAR from disposing of the interest or the receivable on the interest, it must be incumbent on the Ministry of Taxation to prove this or at least to explain what the restraint on Nycomed S.C.A., SICAR's freedom of action consisted of. In this respect, it is noted that Nycomed S.C.A., SICAR had a well-founded business purpose, which consisted in being the joint investment company of a large number of capital owners who had decided to invest jointly, and that there is no justification whatsoever for a presumption that Nycomed S.C.A., SICAR should have committed itself in advance to continue the interest.

On the contrary, as just mentioned, the purpose of the established intra-group financing structure from Nycomed S.C.A., SICAR down to Nycomed A/S (Takeda) was, inter alia, to obtain the tax advantage of interest deductibility in Denmark without any countervailing (effective) taxation of the interest at Nycomed S.C.A., SICAR. This in itself shows that there was no onward flow of interest from Nycomed S.C.A., SICAR and that this was never intended to happen. Thus, no commercial or fiscal purpose for channelling the interest to the capital owners can be demonstrated.

Therefore, no other company than Nycomed S.C.A., SICAR could dispose of the interest/claim on the Swedish ultimate parent company.

7.7.5 Interest has not been passed on to Nycomed S.C.A., SICAR's shareholders

There has been no onward transfer or crediting of interest from Nycomed S.C.A., SICAR to others. If the Treasury claims that interest has been passed on to Nycomed S.C.A., SICAR, it is for the Treasury to prove this or at least to explain how the passing on allegedly took place, which has not been done.

The owners of Nycomed S.C.A., SICAR had fully equity financed Nycomed S.C.A., SICAR. Thus, no loans were or have ever been granted by the consortium of owners to Nycomed S.C.A., SICAR, and therefore no interest has ever been paid by Nycomed S.C.A., SICAR to its shareholders. ...

It is therefore agreed that the fact that Nycomed S.C.A., SICAR, in connection with the sale of the Nycomed group in 2011 and 2012, carried out capital reductions with the repayment of paid-in capital and the transfer of the proceeds from the sale of Nycomed A/S (Takeda) cannot be equated with a further payment of the disputed interest (the first of which dated from 2007), cf. the Ministry of Taxation's procedural document A (p. 3) - [...], which states:

"Takeda's statement that Nycomed S.C.A., SICAR has made repayments of paid-in capital as well as payments of proceeds to its investors in connection with capital reductions in 2011 and 2012 (see order for reference, point 48) is disputed as undocumented, as is the fact that such payments, if any, would have resulted in a 'pass-through' of the interest at issue." (emphasis added).

The above demonstrates that Nycomed S.C.A., SICAR was the "rightful owner" of the interest, if the Swedish companies were not.

7.7.6 Nycomed S.C.A., SICAR is covered by the DBO with Luxembourg

It is undisputed that Nycomed S.C.A., SICAR is domiciled in Luxembourg. The fact that Nycomed S.C.A., SICAR only realised income which was tax exempt under Luxembourg tax law is also not disputed as a fact which precludes the company (and Luxembourg) from relying on Article 11 of the DTA according to which Denmark has refrained from taxing interest accruing to companies resident in Luxembourg. This will be discussed in more detail later.

However, the Ministry of Taxation argues that the company is not covered by the DTA since, according to the Ministry, it is covered by a final protocol to the DTA, drawn up when the original DTA with Luxembourg was concluded in 1980, which excludes so-called 1929 holding companies from the DTA.

Article 1 of the Final Protocol reads as follows in the Danish version [...]: ...

The simple fact is that this exemption clearly concerns only special 1929 holding companies, and there is no basis whatsoever for concluding that companies other than the special 1929 holding companies expressly mentioned should also be exempt from the DBO.

...

Since Nycomed S.C.A., SICAR enjoys protection under the Danish-Luxembourg DBO, there is no abuse in the case and the company (or Nycomed Sweden Holding 2 AB) is not subject to limited tax liability in Denmark under SEL § 2(1)(d) and there is therefore no basis for withholding tax.

...

7.7.7 The (changing) reasoning of the Ministry of Taxation in the case

...

Takeda has never claimed that the interest had been passed on to the investors in Nycomed S.C.A., SICAR. Takeda has merely taken the position that if the Court were to find that the interest had flowed to the investors, then the investors as the more 'alternative' 'beneficial owners' would also be entitled to a waiver of the interest withholding tax, see further on this alternative view below in paragraph 12.

... Where audited accounts in an EU country show that Nycomed S.C.A., SICAR was the owner of the claim against the Swedish parent company and the interest thereon, and the accounts also show that Nycomed S.C.A., SICAR was fully equity financed, there is no basis for assuming that the interest has been passed on through Nycomed S.C.A., SICAR.

...

7.7.7.2 It is agreed that it is irrelevant that Nycomed S.C.A., SICAR is transparent under Danish tax law

...

Subsequently, in the duplicate of 10 January 2020, the Ministry dropped the plea i.e. after more than 7 years of process [...]:

"The Ministry of Taxation rejects the plea that Nycomed S.C.A., SICAR cannot be the rightful owner of the interest under the Double Taxation Convention, already because the company is transparent under Danish law...".

Instead, the Ministry of Taxation took an entirely new position, namely that the company is not covered by the Danish-Luxembourg DTA at all, by reference to Article 1 of the Final Protocol (which excludes Luxembourg's so-called 1929 holding companies), as discussed in the following section.

7.7.8 New argument of the Ministry of Taxation that Nycomed S.C.A., SICAR is not covered by the DBO with Luxembourg

...

Takeda submits that Nycomed S.C.A., SICAR is not covered by Article 1 of the Final Protocol and is therefore protected by the Luxembourg DBO. Takeda will explain this in the following subsections.

...

7.7.8.2 The burden of proving that the DBO between Denmark and Luxembourg is to be understood as claimed by the Ministry of Taxation is on the Ministry and the burden of proof has not been discharged

The wording and purpose of the Final Protocol is self-evidently clear. It is an exception which specifically concerns 1929 holding companies and only them.

Ex tuto, it is argued that the burden of proving the facts and the law relied on by the Ministry in support of the extension of Article 1 of the Protocol to a company such as Nycomed S.C.A., SICAR, lies with the Ministry.

...

This follows from the general rules on the burden of proof, but it is all the more true here because the Ministry is a party to the agreement and is thus the only party to have access to the documents relating to the negotiations on the provision and is thus in a position to clarify the understanding and intention of the provision. Takeda, on the other hand, does not have access to this material. The Ministry should at least have provided documents showing that the parties (Denmark and Luxembourg) had the alleged common understanding, which goes far beyond the wording of the provision. This has not been done. ...

...

7.7.8.3 DBOs generally include tax-exempt entities

...

Firstly, it should be noted that it is quite common in the international and also the Danish context for legal associations to be exempt from tax, either on all their income or on certain income. Where a State has agreed, under a DTA, to the exclusive right to tax a particular item of income, this also implies the right for that State to exempt that income from taxation without the involvement of the other State.

At the time of the conclusion of the DTA with Luxembourg in 1980, Denmark had (and still has) many tax-exempt legal entities. Reference is made to the current Company Tax Act § 3 [...] and the 1979 Companies Equalisation Guide pt. S.A.3 [...]. In particular, associations as defined in SEL § 1(1)(6) should be highlighted (including business associations which only have turnover with their members as defined in SEL § 1(5)). This exemption provision thus covers, for example, all cooperative housing associations, large sports organisations and large non-profit associations. In addition, a large number of public law entities are exempt from tax, even if they cannot be considered part of the state, cf. SEL § 3. This applies to certain religious communities, ports, airports, water supply companies, schools, hospitals and theatres.

Furthermore, it appears that non-profit foundations could be exempted from tax altogether, cf. Order No 67 of 28 February 1978 [...] and Circular No 119 of the Ministry of Taxation of 14 June 1963 [...].

As regards companies engaged in financial activities, it should be noted that the Danish rules in force (in 1980, when the DBO with Luxembourg was concluded) exempted pension funds subject to the law on the supervision of pension funds from all tax. Furthermore, mortgage credit institutions were exempt from income from statutory activities, which of course included interest income from borrowers domiciled in Luxembourg.

Furthermore, it appears that the still applicable provision of Article 1(1)(6) of the State Tax Code had (and still has) the consequence that legal entities taxed under this provision are taxable only on business income. It was and is settled practice that tax liability in this situation does not extend to returns on liquid assets, including interest income, which are not attributable to the operation of the business.

In 1980, one consequence of this was that all foundations other than the separately exempted non-profit foundations were taxable only on any business activities, and the Equalisation Manual states in section S.A.3.2 [...] that the tax liability "does not extend to interest on public bonds, mortgages, etc. and bank deposits in excess of amounts used in the conduct of the business." One of the consequences of this was that some of our very largest business foundations were, under the current rules, exempt from tax on the return on assets that were not part of their business.

A further consequence of the provision was that trade unions and employers' associations were exempt from tax, as were the returns on assets set aside for strikes and lockouts.

Of particular interest in this case is the taxation of investment funds at that time. Until Law No 536 of 28 December 1979, which entered into force on 1 January 1980, only special rules had been laid down for investment associations, as provided for in Decree-Law No 130 of 6 April 1967. The preparatory works for the 1979 Law (Folketingstidende 1979-1980, tillæg A, 2. saml., p. 662) state that there were very few account-keeping investment funds. The same passage also refers to the legal situation up to 1 January 1980:

"The investment funds issuing certificates are subject to the rules in force under Article 1(1)(6) of the Corporation Tax Act, according to which the funds in question are taxable only in respect of income from commercial activities.

To the extent that the sole purpose of the association is to receive deposits from its members and to invest these deposits in securities, the association is not carrying on a business and the investment funds as a whole are therefore exempt from tax...." [our emphasis].

Further, p. 663 states:

"In recent years, a number of certificate-issuing mutual funds have been established which, according to their articles of association, distribute nothing to their members, the so-called accumulation mutual funds. Interest and dividends as well as capital gains are added to the assets of the fund and reinvested with the effect of increasing the value of the certificates.

Under the rules of the Special Income Tax Act, etc., the accrued gain on the disposal of shares is reduced by 5 per cent, up to a maximum of DKK 4 000, and the first DKK 6 000 of special income is exempt from tax. These deductions, combined with a rounding-off rule for the calculation of the tax, make it possible for members to realise a tax-free profit of up to DKK 6 421 a year on the continued disposal and replacement of certificates, a profit which in reality derives from the untaxed interest and dividends added to the association's assets.

It is therefore proposed that, as from 1 January 1980, investment funds issuing certificates should be taxed in the same way as limited companies and professional associations, unless the fund is required by its articles of association to distribute all the interest and dividends received before the deadline for filing a tax return for the year in question. After that date, interest and dividends will be taxable income for the association, as will gains and losses on the disposal and redemption of securities, which must be included in the association's income...

Under the proposal, investment funds which are obliged by their articles of association to distribute interest and dividends before the deadline for filing a tax return will continue to be exempt from tax, whereas members will be taxed on an ongoing basis on the amounts distributed." (Our emphasis).

The Act was passed in the form in which it was proposed.

Thus, at the time of the conclusion of the DBO with Luxembourg in November 1980, a very significant proportion of Danish companies etc. were tax exempt and the taxation of Danish investment funds was, even after the 1979 amendment of the law, based on the principle that the funds were tax exempt.

If Denmark had taken the approach in the negotiations on double taxation agreements that it would not include tax-exempt entities in the DTAs, this would therefore have an impact on the aforementioned Danish tax-exempt entities, since Denmark cannot be expected to maintain withholding tax in relation to tax-exempt entities resident in the other country without the other country requiring that tax-exempt entities resident in Denmark also be taxed at source.

At the time of Luxembourg's entry into the DTA with Denmark, Luxembourg also had a number of legal entities other than the 1929 holding company which did not pay tax. In particular, the forms of company 'association sans but lucratif (ASBL)' and 'fondation d'utilité publique', which are exempt from tax on condition that they pursue exclusively religious, cultural or non-profit objectives, are referred to in Article 161 of the Luxembourg Income Tax Law (LITL) [...] and Article 3 of the Gewerbesteuergesetz of 1 December 1936 (as subsequently amended) [...].

However, it is now also clear that Denmark does not interpret its DTTs in such a way that it is a condition for the protection of a company with income from sources in this country that the foreign entity in question is actually subject to taxation in the country in which the entity is resident, see below.

...

The Court of Appeal may therefore consider that the fact that Luxembourg does not tax Nycomed S.C.A., SICAR on the interest in question does not constitute a ground for refusing Nycomed S.C.A., SICAR protection under the DBO.

...

It should also be noted that the fact that the interest is not taxed in the hands of Nycomed S.C.A., SICAR does not constitute any abuse of the DBO or Luxembourg national law. Indeed, it is precisely the intention of Luxembourg law that Nycomed S.C.A., SICAR should not be taxed on the disputed interest as long as it fulfils the conditions for non-taxation set by Luxembourg. Similarly, Danish companies which are tax exempt under domestic Danish law should be tax exempt.

The background to the interpretation of Article 1 of the Final Protocol is thus that the question of DBO protection for tax-exempt entities is a well-known issue, of which both Denmark and Luxembourg were undoubtedly aware when concluding the DBO, and that it is the clear position of Denmark, Luxembourg and the OECD commentaries that a company enjoys convention protection even if it is tax-exempt in its country of residence.

Furthermore, it should be stressed that Denmark and Luxembourg could have agreed on a so-called "subject to tax" clause (i.e. an effective taxation condition) linked to Article 11 of the DTT. With such a clause, the source State could thus have made the tax exemption of interest paid to an entity in the domiciliary State conditional upon the interest income being subject to effective taxation in the domiciliary State. Such a clause is contained, for example, in Article 10 of Luxembourg's DTA of 1 April 1958 with France (as amended by the Protocol of 8 September 1970), [...].

Where a DBO does not specifically include as a condition for the source country's relinquishment of its taxing rights the effective taxation of income by the source country (a "subject to tax" clause), Luxembourg case law has held that such a condition cannot be interpreted in DBOs. See the decision of 16 March 2011 of the Luxembourg Administrative Court [...] and A. Steichen and L. Noguera: Double Non-taxation in Luxembourg reproduced in M. Lang: Avoidance of Double Taxation, 2003, p. 217 ff. [...].

In the case of interest and other payments that are deductible in the source country, the fact that the recipient country does not tax the income in question does not pose a problem either. A source country which considers it inappropriate for interest, for example, which is deductible in the source country not to be taxed in the recipient country can resolve this situation, even though the DTTs do not prevent such a situation. There is nothing to prevent the source country from introducing a purely internal rule denying the debtor the right to deduct interest in the source country in such cases. It does not alter the fact that the recipient is exempt from tax on the interest income, but it does provide an option for the source State which has a political desire to prevent the asymmetry inherent in interest being deducted in the source State but not taxed in the recipient State. As long as the denial of the right to deduct does not conflict with any discriminatory provisions in the DTA, the DTA will not prevent such a unilateral solution based on the source country's domestic law on the tax deductibility of interest.

Denmark has introduced safeguards of this type, but only for some specific situations where the situation of deductibility by the debtor and non-taxation by the creditor arises due to different legal qualification of the return in the source country and the State of residence respectively. However, the Danish Parliament has never seen fit to introduce a general rule whereby the right of a Danish debtor to deduct interest would depend on the creditor actually being taxed on the interest income (whether the creditor was resident in Denmark or abroad).

Thus, with effect from 13 December 2006, the Folketing adopted the following provision in SEL § 2 B (Law No 344 of 18 April 2007, § 1, No 1) [...]:

"Paragraph 1. If a company or an association etc. referred to in § 1 has a debt or the like to a person or company resident abroad and the claim

Paragraph 1 shall apply only if the foreign person or company has a controlling influence over the company or if the companies are affiliated within a group, cf.

Paragraph 2. Qualification pursuant to paragraph 1 shall entail that the interest payments and exchange losses of the company shall be deemed to be dividend distributions.

Paragraph 3. Paragraphs 1 and 2 shall apply mutatis mutandis to companies covered by Article 2(1)(a) and (b)."

The provision meant that a Danish debtor was denied the right to deduct interest in the special situation where, under Danish law, there was a loan, while the creditor country considered the loan to be equity and thus the interest as (possibly tax-free) dividends. Moreover, the provision applied only to loans between related parties.

Law No 1726 of 27 December 2018 replaced this provision with effect from 1 January 2020 by SEL § 8 D [...], which remains limited to situations where the non-taxation of the interest income by the creditor is due to a different qualification of the payment in the debtor country and the creditor country (so-called "hybrid mismatch"). The 2018 legislative amendment was due to the alignment with the EU Directive 2017/952 ("Anti Tax Avoidance Directive II ATAD II") [...] and it is quite clear from the preamble of the Directive, point 16, that the intention of the Directive is to address only the specific situations of hybrid mismatch [...]: ...

ATAD II and thus the current Danish rules are based on a report published by the OECD in October 2015 entitled "Neutralising the Effects of Hybrid Mismatch Arrangements". On p. 192 [...] an example 1.5 is given where a deductible payment is made in one country to a tax exempt entity in another country. Both states involved agree that this is a debt instrument. The example shows that there is no hybrid mismatch of the type that the report calls on Member States to address.

It is therefore clear that, notwithstanding the DTTs, Denmark has the option of preventing interest from being deducted "at home" without being taxed "abroad", but Denmark has only chosen to make use of this option in a way which is not relevant to this case, and Denmark is in line with the EU and the OECD on this point. The present case does not concern Nycomed A/S (Takeda)'s right to deduct interest.

The background to the interpretation of the Final Protocol is thus that it is beyond doubt that the intention of the parties to the Final Protocol was not generally to exclude tax exempt companies from the DTA.

...

It is also clear that it is quite unlikely that the Final Protocol reflected a desire on the part of Denmark generally to exclude a company from the scope of the DTA because it was wholly or partly exempt in Luxembourg. Both Luxembourg and Denmark had a variety of tax exempt entities in 1980 and it would have serious consequences for many Danish tax exempt entities if Denmark took the approach to DBO negotiations that tax exempt entities were not DBO protected. However, it is also clear from the Legal Guide that Denmark, along with the majority of OECD countries, takes the approach to the interpretation of DBOs that tax exemption does not exclude a company from treaty protection.

...

Moreover, there is no evidence at all that the 1929 holding company exemption was justified by the lack of taxation of the company.

7.7.8.4 A literal interpretation of the Final Protocol clearly leads to the conclusion that only 1929 holding companies are excluded from the protection of collective agreements

It is undisputed in this case that an S.C.A. limited partnership is covered by the DBO.

As we explain in more detail below in section 7.7.8.6, under certain conditions, an S.C.A. could, in particular, be subject in Luxembourg to a regulatory and tax regime reserved for a SICAR (société d'-investissement en capital à risque).

The question is whether such an S.C.A. company, which qualifies for the special regulatory and tax status of SICAR introduced by Luxembourg in 2004, is covered by Article 1 of the Final Protocol to the DBO (thus concluded in 1980, i.e. before the SICAR legislation was adopted) on the so-called 1929 holding companies, with the effect that a SICAR investment company is exempted from DBO protection.

Takeda, on the other hand, argues that an investment company such as an S.C.A., SICAR is not covered by Article 1 of the Final Protocol and that Nycomed S.C.A., SICAR therefore enjoys protection under the DBO.

[...]

The immediate and straightforward (and correct) understanding of the provision is that it is a very narrow exception that applies only to 1929 holding companies and only to them. The first sentence identifies the 1929 holding companies in a very straightforward and concise manner which does not leave room for an expansive interpretation, and the second sentence is about exempting income and capital gains derived from exactly the same companies. Article 31(1) of the Vienna Convention [...] provides that

"A treaty shall be interpreted in good faith in accordance with the ordinary meaning to be given to the terms of the treaty in their context and in the light of its object and purpose."

...

Guidance No 74 of 28 April 1982 [...], which the Treasury itself issued in connection with the publication of the DBO, does not support the view that the Final Protocol should have a wider scope than the 1929 holding companies. The guide merely reproduces the text of the Final Protocol on this point.

...

Apart from the fact that an S.C.A., SICAR company is not at all comparable to a 1929 holding company as will be demonstrated under the next point, there is no support for such an expansive interpretation of the wording of the provision.

As is clear from the text, the two paragraphs of the provision address a 1929 holding company by reference to the law applicable to such companies at the time of the conclusion of the DBO in 1980.

The first sentence addresses the question whether the 1929 holding company itself enjoys protection under the DBO. The second sentence concerns the investors in a 1929 holding company and is twofold, stating first that income received by a Danish company from a 1929 holding company (e.g. a royalty) is not covered by the DBO, as is income received by a Danish person on shares in a 1929 holding company (i.e. dividends). The words 'such companies' do not therefore refer to companies 'equivalent' to a 1929 holding company, but refer directly to the 1929 holding company (i.e. to 'such companies' as referred to in the first indent of the provision).

...

It is important to note how easy it would have been to amend the text of the Protocol so as to make it clear that the 1929 holding companies were only an example and that similar companies were also excluded from the Protocol, or to write outright that Luxembourg tax-exempt companies were generally excluded from the scope of the DBO. However, the parties to the agreement have not done so. And that was because that was not the intention of the Final Protocol.

The French version ...

Furthermore, you can search for the English translation ...

In this connection, reference should also be made to the legislative notes to the bill implementing the Draft Agreement into Luxembourg domestic law (Bill No 2533 of 6 October 1981), which states, with regard to paragraph 1 of the Final Protocol, ([...] (French original and unauthorised translation into English)):

"To paragraph 1 of the Final Protocol

This paragraph provides that holding companies are excluded from the scope of the Convention under Luxembourg special legislation. The same applies to income derived by a person resident in Denmark from such companies and from shares in them. The wording corresponds to that used in most of the conventions concluded by Luxembourg."

It is clear from this that the reference relied on by the Ministry of Taxation concerns the same companies.

The Ministry of Finance also pointed out that the provision referred to the legislation on 1929 holding companies, using the words 'for the time being

....." /"price an execution...".

However, this merely states the obvious: the fact that the 1929 holding companies in question might be subject to new, amended legislation does not alter their status under the DBO. The intention was, of course, simply to ensure that Luxembourg could not simply replace the then existing legislation on 1929 holding companies with a new one and thus circumvent the provision. However, this does not mean that other legislation relating to other companies is thereby covered by the derogation in question. ...

... There is no evidence that the two Contracting States wanted anything other than to exempt the 1929 holding companies in question and only them. This is also supported by the fact that the Ministry of Taxation has subsequently approved other (later) tax-exempt Luxembourg investment companies as being covered by the DBO, as further explained in section 7.7.8.7 below.

The result is supported by a number of general principles of interpretation.

First, it is noted that the Final Protocol adopts the approach of defining exempt holding companies by reference to a very specific company formation in Luxembourg's domestic law. No attempt has therefore been made to define the exempt territory on the basis of objective criteria. This in itself militates against an interpretation of the Final Protocol that is more wide-ranging. ...

As mentioned above, the Final Protocol contains a specific derogation from the DBO. The Final Protocol thus does not express an agreement on an interpretation of the general provisions of the Draft BER, but precisely a derogation from the result which would normally follow from the provision. It is a generally recognised principle of interpretation that exceptions are interpreted restrictively, i.e. only as far as the wording of the exception undoubtedly goes, cf.

...

Moreover, the reservation is unilateral it is only to the benefit of Denmark, which retains a right of taxation in respect of income, including interest, accruing to 1929 holding companies. Although Luxembourg does not tax 1929 holding companies, Luxembourg has an obvious interest in ensuring that its resident companies are not taxed by other countries. It is therefore presumed that Luxembourg intended the scope of the Final Protocol to extend beyond that which clearly follows from its wording. Indeed, as will be seen from section 7.7.8.7 below, Luxembourg has actively pressed for Denmark to comply with the main rule of the Convention that tax-exempt entities also enjoy Convention protection, and has done so successfully.

7.7.8.5 Similarly, an interpretation of purpose leads to only 1929 holding companies being exempt from convention protection.

To the extent that the Ministry of Taxation bases its position on a purposive interpretation of the DBO and the Protocol by referring to the fact that the purpose has been to avoid tax deductions in Denmark without including the interest in the tax base in Luxembourg, it must first be reiterated that it is not a general purpose of a DBO to avoid this situation (see above in paragraph 7.7.8.3).

First, the issue of deduction without inclusion is simply not a question of double taxation or double non-taxation. Double taxation occurs when the same income is taxed twice. Double non-taxation exists when no state taxes an income. The situation of a right of deduction in one country and no taxation in another is of a different nature, which is shown in particular by the fact that the source country, which for political reasons does not like to grant a right of deduction to a resident debtor for interest which is not taxed in the hands of a foreign creditor, has the possibility of legislating against this by purely national legislation, namely by refusing the resident debtor a right of deduction in such a situation, as Denmark had also done to some extent with SEL § 2B (now SEL § 8D), cf. paragraph 7.7.8.3 above.

Secondly, it is not an abuse of the Agreement, either by Nycomed S.C.A., SICAR or by Luxembourg, that Nycomed S.C.A., SICAR could earn interest tax-free, while Nycomed A/S (Takeda) in Denmark received a deduction for the interest. The tax exemption is a consequence of the full taxing competence left to Luxembourg by Denmark, as the competence to tax also includes the competence not to tax and as Nycomed S.C.A., SICAR acts in full compliance with Luxembourg law. Danish courts have no right of censorship over the way in which Luxembourg exercises or fails to exercise, as in this case, its competence to tax. Denmark could have required effective taxation as a condition for giving up its taxing rights in the form of a "subject to tax" clause similar to the one France had with Luxembourg in their DBO.

In this context, see for example TfS 1997.506 H ....

The decision shows that as long as an intra-group borrowing is made on market terms and in the ordinary course of business, there can be no restriction on the debtor's right to deduct without express legal justification and solely on grounds of abuse, even if the creditor is not taxed on the interest.

The very fact that a creditor is not taxed on intra-group interest income is simply not unfair as long as, as here, the non-taxation is the result of a deliberate failure by the legislature to tax in the situation in question. There is therefore no basis for an interpretation of the purpose which is based solely on the implicit and unsupported assumption that the parties to the agreement sought to avoid this situation even in the case of companies other than the 1929 holding companies.

In contrast, Denmark does not grant tax exemption for interest income simply because the debtor does not have a tax deduction for the interest, whether the debtor is resident in Denmark or abroad, see for example the judgment of the Court of Justice of the European Union in C593/14 Masco Denmark ApS (paragraph 43) [...] and SKM 2019.6.SKTST [...].

...

It appears [...] from the ratification of the DBO in Luxembourg that the purpose of Article 1 of the Final Protocol was to clarify that the "subscription tax" paid by 1929 holding companies was not covered by the Agreement.

Thus, according to the recommendation of the Council of State of 8 December 1981 on the draft law implementing the DBO in Luxembourg law ([...] French and here in own translation)

"Paragraph 1 of the Final Protocol provides that, under Luxembourg law, holding companies are excluded from the scope of the Convention.

Since these holding companies are not subject to income or wealth tax, they are not normally covered by double taxation conventions.

When the High Contracting Parties have explicitly mentioned Luxembourg holding companies, it is undoubtedly at the request of the Danish co-signatory, which wished to avoid confusion between the taxes mentioned in the Convention and the subscription taxes ["impots d'abonnement"] payable by holding companies.

It is true that the exclusion of holding companies can also be seen as a sign of mistrust on the part of our contracting parties towards one of our most original fiscal and financial institutions.

While we can hardly object to the exclusion of holding companies from the scope of the Convention, we must remain vigilant to ensure that our specific legislation is not attacked head-on by those who, rightly or wrongly, consider themselves its victims." (Our emphasis).

It appears that it was Denmark that wanted Section 1 of the Final Protocol introduced, and that the purpose was to avoid confusion as to whether the "subscription tax" paid annually by 1929 holding companies was a tax covered by the DBO. If, in these circumstances, the Ministry of Taxation argues that the purpose of the Final Protocol was in fact to avoid Luxembourg companies which paid no tax or only a marginal tax being covered by the DTA, the burden of proof lies with the Ministry of Taxation.

As will be shown below, Nycomed S.C.A., SICAR does not pay subscription tax.

It also appears from the above that Luxembourg could accept the exclusion of 1929 holding companies, but that the exclusion of 1929 holding companies at the same time created an awareness on the part of Luxembourg not to be subjected to "frontal attacks" on its other fiscal and financial instruments. It would therefore be inconsistent with the common intention of the parties to the Final Protocol to use it as a basis for an interpretation of purpose which denies agreement protection to companies other than precisely the 1929 holding companies.

In sum, there is no basis for interpreting the Final Protocol either expansively or purposively.

7.7.8.6 An S.C.A., SICAR company is not comparable to a 1929 holding company

In any event, a Luxembourg S.C.A., SICAR company is not identical or in any way comparable to a 1929 holding company.

[...]

The 1929 holding company was subject to relatively simple requirements:

- There had to be holding activity in the form of (passive) ownership of shares or possession of intangible assets (Article 1). 1929 holding companies were thus ordinary holding companies, for which there was no requirement as to the precise purpose of the investment or the ownership structure. That is to say, they were companies set up to hold the investment assets that the shareholders wished and for as long a period as the shareholders deemed appropriate.

- The 1929 holding company was not targeted at professional investment activity. There were thus no requirements as to the asset mix, either in terms of risk diversification or in terms of the requirement that the 1929 holding company invest in a particular type of asset.

- The 1929 Law did not contain any investor protection rules, nor did it impose any requirements on investors, either in terms of the capital injected or in terms of their professional skills.

- The 1929 holding company was not subject to supervision by the Luxembourg Financial Supervisory Authority, nor was the 1929 holding company subject to any reporting obligations. There was no obligation to audit the accounts of a 1929 holding company.

- The application of the 1929 regime was thus available to anyone wishing to set up a holding company, whatever the investment, as long as it was a pure holding company not otherwise engaged in any business activity. Anyone could transfer their shares etc. to a holding company, which could be wholly owned, and, because of the absence of reporting and auditing obligations, avoid others, including the tax authorities, having any insight into the holding company's activities.

- As regards the taxation of the 1929 holding company, it should be noted that these companies were completely exempt from corporation tax and paid only a (symbolic) 'subscription tax' under Article 1 of the 1929 Law [...] (of 0,2 % of the company's capital). The company was thus subjectively exempt and had no obligation to file a tax return. On that basis, the company could not, in general, obtain a certificate of residence from the Luxembourg tax authorities (as a company subject to Luxembourg DBOs).

A variant of the 1929 holding company was introduced by decree of 17 December 1938 [...], which is also mentioned in the Final Protocol.

In contrast, companies are subject to the SICAR law [...].

A SICAR may take various forms under company law. Nycomed S.C.A., SICAR was, as its name indicates, an S.C.A. (société en commandite par actions). The designation SICAR indicates that the company has chosen to submit itself and is registered under the SICAR law.

The SICAR law is part of Luxembourg's legislation on regulated collective investment undertakings, which is described in detail later. As in Denmark, these entities are often tax-exempt because the aim is to avoid collective investments entailing additional taxation compared to the situation where each investor invests directly.

If the SICAR regime is chosen, (passive) holding activity is simultaneously opted out; a SICAR may only invest in high-risk assets, i.e. assets in which the SICAR participates through its investment in the development of the underlying company. When the underlying company has reached a sufficient stage of development that an investment in the company is no longer an investment in a high-risk asset, the SICAR must divest its investment. The purpose of a SICAR company is thus not to hold shares as a long-term investment, but rather to develop the company so that it grows, and on that basis to dispose of the shares with the maximum gain for investors.

This is clear, for example, from the communication of 5 April 2006 of the Luxembourg financial supervisory authority, the CSSF [...], which states:

"In order to maximise profits from investments for the SICAR's shareholders, the SICAR will often intervene in management of the portfolio companies via an advisory activity or a representation in the managing bodies of the portfolio company, thereby aiming to create value in the latter through restructuring, modernisation, and by promoting any measures likely to improve the allocation of resources."

SICARs can thus be used for the activity also carried out by Danish private equity/capital funds, which have active ownership with a view to developing and liquidating their investment with the highest possible return. As regards the question whether the SICAR is a general holding company, the CSSF states [...]:

"Finally, it should be noted that as an investment company in risk capital, the SICAR's declared intention shall be in general to acquire financial assets in order to sell them with a profit, as opposed to a holding company which acquires to hold." (emphasis added).

As set out in the SICAR Law [...] and the CSSF's communication of 5 April 2006 [...], SICAR is subject to a wide range of regulatory requirements, including;

- the CSSF must approve the establishment of a SICAR in accordance with Article 11 of the SICAR Law

- the SICAR has ongoing reporting obligations to the CSSF, which supervises the SICAR's compliance with its obligations, in accordance with Article 11 and Article 28 of the SICAR Law

- the SICAR must appoint an independent depositary in the form of a financial institution subject to public supervision, which must safeguard investors' rights, in accordance with Article 9 of the SICAR Law

- the management of the SICAR is subject to a fit and proper requirement in accordance with Article 12(3) of the SICAR Law

- Only certain qualified investors may invest in the SICAR, in accordance with Article 2 of the SICAR Law

For the purposes of tax treatment, an S.C.A. (société en commandite par actions) is a separate taxable entity under Luxembourg law. This follows from Article 159(1) (1A) of the Luxembourg Income Tax Code [...]. The starting point here is that an S.C.A. is taxable on its global income.

However, the SICAR law also contains special tax rules for SICAR companies. Thus, Article 34(2) of the SICAR Law provides that the income of a SICAR from investments in risk capital is not included in the taxable income of the SICAR [...]:

...

A SICAR is thus subjectively taxable to Luxembourg under Luxembourg Income Tax Law Article 159(1) (1A) [...] and is thus required to file a tax return (and may obtain a residence certificate for double taxation relief) but is objectively exempt from tax on returns derived from investment in high risk assets (and only such returns). If a SICAR company realises losses or has to write off its investments in risk capital, the losses are also not deductible from the company's ordinary taxable income.

A SICAR does not pay wealth tax (beyond the minimum wealth tax) and does not pay, as 1929 holding companies do, a subscription tax of 0.01% or 0.05

%.

It is correct, as pointed out by the Ministry of Taxation, that Nycomed S.C.A., SICAR has not specifically paid income tax in Luxembourg during the three income years in question. This is apparent from the company's annual reports and is therefore due to the fact that the company received income solely from its investments (i.e. the interest income at issue in this case).

It is disputed, however, that it can thus be concluded, as the Ministry of Taxes appears to do, that 'the company has thus been completely exempt from direct taxation in Luxembourg', see the Ministry's procedural document 3, p. 6.

The company has not been 'exempt from direct taxation in Luxembourg', but has been exempt from tax on certain income from its investments. In the years in question, the company's income consisted solely of such income.

For example, had Nycomed S.C.A., SICAR had interest income, perhaps from an investment in bonds after an Exit for a longer period, such interest income would have been taxable to the Company at the generally applicable corporate tax rate in Luxembourg, which in 2007 was 29.63%.

At the investor level, i.e. for investors in the SICAR resident in Luxembourg, the returns of a SICAR are taxed in the same way as returns of other Luxembourg companies subject to corporate income tax, i.e. an individual is taxed on dividend distributions (at distribution), and share gains on realisation according to specific rules. Taxation depends, inter alia, on whether trading is speculative and on the percentage of shares held by the shareholder in the underlying company. Corporate investors resident in Luxembourg are also taxed on dividend distributions and realisation, although Luxembourg, like Denmark, exempts certain dividends and share gains from tax (parent company exemption).

While 1929 holding companies have thus been able to be used for private investments without public scrutiny, audit and time limitation and with a subjective total tax exemption, the SICAR scheme is part of Luxembourg's system of regulated collective investment undertakings with a narrowly defined scope, subject to public scrutiny and audit. The tax exemption is objective only, i.e. for certain income, and reserved for the generally recognised purpose of enabling a plurality of investors, through investment funds, to pool their investments without incurring increased taxation.

In addition to the significant differences mentioned above, it should be noted that the legislation on 1929 holding companies was repealed in 2006 (with final effect in 2011) by the Law of 22 December 2006 [...] as a result of the European Commission's decision of 19 July 2006 [...] finding that the tax regime applicable to 1929 holding companies constituted unlawful State aid.

In this context, it is important to note that the Commission also examined whether a SICAR company constituted unlawful State aid. Indeed, at the time of the adoption of the Law, the Commission opened an investigation but closed the case administratively in 2011, see case No 54 in the Annex to the letter of 29 April 2015 from Competition Commissioner Margrethe Vestager [...]. The Commission must therefore have come to the opposite conclusion as regards the SICAR company. This also demonstrates that there is a relevant difference between the two companies.

It is reiterated that the burden of proof lies with the Ministry of Taxation to identify and prove the elements of Luxembourg regulation/taxation invoked to support the assimilation of SICARs to 1929 holding companies for the purposes of the Final Protocol (if indeed the Protocol were to allow for such an expansive interpretation, which is disputed).

...

7.7.8.7 The Ministry of Taxation has informed Luxembourg that Denmark considers Luxembourg investment companies to be covered by the DBO despite the fact that they are completely exempt from corporate taxation

... The Ministry of Taxation [has] itself confirmed to Luxembourg in 2006 [...] that Denmark considers other Luxembourg investment companies, which are fully exempt from corporate tax in Luxembourg, to be covered by the DBO.

On 10 July 1992 the Luxembourg tax authorities asked the Danish tax authorities whether they agreed that Luxembourg investment companies governed by the Law of 30 March 1988 on collective investment undertakings were not covered by Article 1 of the Final Protocol and that they therefore enjoyed DBO protection [...].

...

The Ministry of Taxes replied in October 1993 [...] that the investment companies in question were not covered by the DBO because they were covered by Article 1 of the Final Protocol on holding companies, the purpose of which, according to the Ministry, was to avoid double tax exemption.

...

However, 12 years later, in July and December 2005, the Luxembourg tax authorities again approached the Ministry of Taxes [...], asking whether the Ministry of Taxes still considered that Luxembourg investment companies fell outside the scope of the DTA by virtue of Article 1 of the Final Protocol.

...

The Ministry of Taxation then turned the tables when the Ministry's leading international expert, Ivar Nordland, replied to the Luxembourg authorities' renewed request on 15 February 2006 (i.e. before the loan structure was established in the present case) as follows [...]:

"I can inform you that I agree on the point of view taken by the Central Customs and Tax Administration in a mail of 14 April 2005. This means that Luxembourg investment funds qualify for benefits ac-cording to the Double Taxation Treaty between Denmark and Luxembourg.

Likewise it we consider the new Danish undertakings for collective investments to be covered by the Double Taxation Treaty. As mentioned in the note from Ernst & Young, these undertakings are in practice tax exempt but the Danish residents, which own the shares in the undertaking, are subject to taxation at an accrual basis of the increase in value of the shares in the undertaking." (Our emphasis).

Luxembourg (and Danish) investment companies were now nevertheless, in the view of the Ministry of Taxation, covered by the DBO.

The Tax Ministry's reply refers to "Luxembourg investment funds", without specifying what exactly is meant. It is clear from the context that reference is made at least to SICAVs and SICAFs, since Luxembourg's letter of 30 December 2005 [...] was attached to a letter of 22 November 2005 from Nordea Bank S.A. [...], which refers explicitly to SICAVs. Nordea's letter was further accompanied by extracts from a guide by the auditing firm Ernst & Young ("Investment Funds in Luxembourg A Technical Guide" of September 2005 [...]), which refers to both SICAVs and SICAFs. This must be the 'note from Ernst & Young' to which Ivar Nordland refers in his letter of 15 February 2006.

Luxembourg's first request of 10 July 1992 [...] expressly concerned 'Investment Funds under the Luxembourg law of March 30 1988', which includes SICAVs and SICAFs, see below. Furthermore, in the letter of 15 February 2006, Mr Nordland refers to the above-mentioned e-mail of 14 April 2005 from the Personal Tax Office, which refers to the binding reply of the Tax Council concerning SICAVs.

Although the SICAR company, newly introduced at that time, is not specifically mentioned, there is no reason whatsoever to believe that the Tax Ministry's generally held answer would not also cover SICARs. In any event, the Treasury did not make any reservation regarding SICARs or find any reason to further specify which "Luxembourg investment funds" the Treasury accepted as being covered by the DBO in its letter of 15 February 2006. At the same time, the Ministry also pointed out that its position meant that the newly introduced (and almost completely tax-exempt) investment companies in Denmark under Section 19 of the Danish Act on Taxation of Capital Gains (a 'Section 19 company') 'the new Danish undertakings for collective investments' also had to be regarded as covered by the DBO.

In any event, the correspondence demonstrates that the Ministry of Taxation did not itself interpret the Final Protocol in an expansive manner, in the sense that any tax-exempt company which came into existence after the wording of the Protocol was already to be assimilated to a 1929 holding company by virtue of the tax exemption. Nor could any tax-exempt holding company, i.e. a company which mainly invested in securities, such as a Section 19 company, be treated in the same way as a 1929 holding company. It must be assumed that the Ministry of Taxes reached this conclusion after mature consideration, since it had previously taken the opposite view, and there is much to suggest that it was the Tax Council's 1995 decision (which came after the Ministry's initial reply to Luxembourg in 1993) that brought about the change of heart.

There is a need here to put the Treasury's response in a wider context.

First, there is widespread international (including Danish) recognition that collective investment undertakings are, as a general rule, entitled to tre