Interpretation of Beneficial Owner of Dividend Distribution in a Perspective of Group Optimization

Abstract

This thesis examines the opportunity for a group to optimize their dividend payment using tax planning by inserting a holding company in the group structure. It will be possible to reach a reduced tax rate of 5 % or 15 % instead of the Danish withholding tax of 22 %, using the model tax convention from OECD or to avoid tax by using the EU Parent-Subsidiary Directive. This type of optimization is only an opportunity if certain rules are respected. This regards the requirement of being a beneficial owner of the dividend, not using abuse and to have substance. These three concepts are not clearly defined in either the model tax convention or the Parent-Subsidiary Directive. Hence, it is analyzed in a legal analysis how these concepts are to be interpreted based on the reading from the Danish Court, EU regulation, European Court of Justice and OECD. The legal analysis concludes on the three concepts and has united the interpretations of the different institutions. In addition, it is concluded legally that the concept will affect national courts in the future, due to a clarified definition by the European Court of Justice. However, this has not resulted in a clear definition of the concepts. The economic analysis shows how the different tax regulations in the countries provides the group incentives to establish in tax havens and how this affects the community. It is concluded based on investment theoretical aspects and game theory that the best opportunity for the group is to establish a holding company in a member state of EU. This affects the state negatively which results in a negative externality and a negative result on the community. Due to an unclear definition of the three aspects legally and the negative economic effect on the community, an optimized rule of the law containing a clear definition and a more identical taxation of dividends is proposed from a legal economy theory. This optimization results in a more efficient equilibrium between the group and the state due to a reduction of the incentives, which reduces the social deadweight loss. Overall the new proposal changes the conclusions of the legal analysis and the economic analysis to a societal optimum with a better distribution of costs and risk between the two parties.