The Role of Conduit Companies Allocation of Dividends & Shareholder Positions

Abstract

The purpose of this master’s thesis is to examine the impact of the use of conduit companies when allocating dividends in multinational enterprises. In 2015, a general anti-avoidance rule was implemented in the Danish Tax Assessment Act, which aims, among other things, to counteract artificial company constellations that intends to circumvent the rules for dividend tax. The focal point from a legal perspective is an assessment of what the applicable legislation in relation to limited tax liability on dividends is and, as a result, when a Danish company is liable for tax on distributed dividends. In January 2023, the Danish Supreme Court ruled in the NetApp and TDC cases regarding the distribution of dividends from Denmark to other countries. The judgment is analyzed in the thesis with the purpose of gaining insight into how the Danish Supreme Court interprets the use of conduit companies when distributing dividends between companies in multinational enterprises. Furthermore, the relevant legislation will be conducted and finally, it will be examined how the implemented general anti-avoidance rule will be affecting similar cases for the future. The economic analysis will be carried out from a shareholder point of view; thus, the primary parties of the analysis will be a parent company and its subsidiary. From an economic perspective, the relationship between the parties to the dividend transaction will be defined based on agency theory. Furthermore, game theory will be used to assess which incentives each party has to choose between two possible strategies. The purpose of this is to find out when the parties will cooperate versus act ac- cording to their own interests. Ultimately, strategic contracting will be used to analyze whether the parties are a strategic fit and how their profit and risk distribution should be allocated. To answer the overall problem of the thesis, the integrated analysis will refer to sections from both the legal and the economic analysis. Sub-elements from the legal analysis regarding legislation and jurisprudence in the field of dividend tax will be included and from the economic analysis the conclusions on the principal-agent relationship, the game theory matrices and strategic contracting will be included. These elements will be used to answer the question of how a parent company and a subsidiary can have a value-creating relationship, as well as how dividends can be distributed, so that applicable legislation is complied with.