The "Commercial Purpose" in the Tax Assessment Act section 3 (2). Including the Use of Holding Companies in International Group Structures

Mikkel Eilertsen & Bo Rewers Nielsen

Student thesis: Master thesis


In recent years, regulatory measures against misuse and abuse of regulation to create tax benefits have been of highest order for both EU and national governments. The purpose is to counter the abuse of regulation using artificial arrangements involving holding companies established in member states of the European Union, to canalize funds to low-tax countries. Various anti-avoidance principles have been a part of the tax regime in Denmark, though none of them adopted by law. In 2015, Denmark adopted their first General Anti Abuse Rule in section 3 of the Tax Assessment Act. Section 3(2) stipulates that “(…) an arrangement or a series thereof shall be regarded as non-genuine to the extent that they are not put into place for valid commercial reasons which reflect economic reality.” This dissertation provides an analysis of the use of the rule in focus. This dissertation attempts to analyse the definition of “valid commercial reasons which reflect economic reality”. Through analysis of case law revolving around beneficial ownership and the limited amount of case law with section 3 of the Tax Assessment Act in focus, Danish case law finds that the matter of “valid commercial reasons which reflect economic reality” is fulfilled when the holding company has a right of disposal to the funds received. Furthermore, this dissertation provides an analysis of the definitions of abuse and wholly artificial arrangements in the application of EU law, in the Danish cases presented to the EU Court. Though the analysis is based on legal opinions from the EU Advocate General, this has been used as a base for the analysis. The EU Advocate General expresses the opinion that if the holding companies are legally established and taxable to an EU member state, they shall the authorized to the benefits of EU legislation. Furthermore, The EU Advocate General instead stipulates that if a company establishes itself in a low-tax state, with the purpose of preventing tax related information to be shared with tax authorities from EU member states; this shall be deemed abusive behaviour. The verdict of the European Court of Justice will have an immense impact on Danish tax law, as the matter going forward will be interpreted in conform with EU-law. This dissertation concludes that the differences in legal treatment of the matter are based upon the different applications of the law and legal methods. This is backed on the one hand by a behaviour protecting tax revenue from the Danish authorities. On the other hand, EU wishes to maintain the functioning of EU’s internal market.

EducationsMSc in Auditing, (Graduate Programme) Final Thesis
Publication date2018
Number of pages117