French Tax Authorities Publish Guidelines as a Consequence of the Termination of the Danish-French Tax Treaty

Date 19 aug. 2010

The French tax authorities have, in connection with the termination of the Danish-French Tax Treaty, published expected guidelines on the future taxation of income which was previously governed by the tax treaty. The termination is effective as of 1 January 2010. The guidelines include a description of the consequences of the termination as well as solutions for avoiding double taxation.

 

Specific Consequences of the Termination

Effective from 1 January 2010, national law will apply since the tax treaty will no longer be in effect as of that date. Thus, a person residing in Denmark may, contrary to what was previously the case, become liable for taxes in France, provided that the person receives income from France, including:

  • Payment of services or after-sale services as well as income from the rental of equipment;
  • Passive income paid by a person residing in France;
  • Capital income from the sale of real property or sale of shares in non-listed companies, provided that more than 50 pct. of the company’s assets consists of real property;
  • Capital income from the sale of share in a French company, provided that the shareholder’s share holding have exceeded 25 pct. within the most recent five years; and
  • Income from a business in France that meets France’s definition of permanent establishment (if the business is considered a permanent establishment pursuant to French rules, but not pursuant to Danish rules, there is a risk of double taxation).

The guidelines also make it clear that the exchange of notes executed between Denmark and France on 28 February 1938 regarding air and sea transport will once again become effective as a consequence of the treaty termination. Pursuant to the exchange of notes, only the state of actual management may tax potential income.

 

Solutions for the Avoidance of Double Taxation

In an attempt to avoid double taxation, the guidelines include an extraordinary and temporary exemption option. This option is available to French taxpayers (both individuals, as well as companies, and applies to taxes paid on Danish-source income, if the tax in question is similar to the French corporate or personal income tax. The exemption amount is equal to the amount of tax that Denmark has actually withheld. The exemption amount is deducted only after the taxpayer’s total income has been determined. The exemption amount can, however, only be deducted in the part of the French taxes that corresponds to the Danish-sourced income and any excess amounts is lost.

 

Additionally, a taxpayer residing in Denmark may in certain circumstances demand repayment of taxes paid in France, provided that the applicable exemption cannot be deducted pursuant to Danish rules or that the taxes paid exceed the taxable amount that would have been calculated if the French tax rules applied.

 

Additional Information

For additional information, please refer to the guidelines (French) and the article Corporate Tax Implications of Denmark’s Unilateral Termination of its Tax Treaties with France and Spain.

 

 

If you have any questions or require additional information on the guidelines, please contact Partner, Adjunct Professor Jakob Bundgaard (jbu@mwblaw.dk) or Senior Associate Henning Hedegaard Thomsen (hht@mwblaw.dk).  

 

The above does not constitute legal counselling and Moalem Weitemeyer Bendtsen does not warrant the accuracy of the information. With the above text, Moalem Weitemeyer Bendtsen has not assumed responsibility of any kind as a consequence of a reader’s use of the above as a basis for decisions or considerations.