When the UK leaves the EU on 31 January 2020, some Danish companies in groups including UK companies may experience that payments received from the US are subject to US withholding tax.
Some Danish companies in groups including UK companies may not be able to comply with the provisions of the double tax agreement between Denmark and the US concerning limitation on benefits based on the owners being resident in the EU, once the UK has left the EU.
Consequently, payments received by such Danish companies from payers in the US may be subject to US withholding tax at rates up to 30 pct.
Background
When a Danish company is to receive a payment from a payer in the US, the company will often be asked to submit a signed US form W-8BEN-E to the payer in the US.
Thus, the US payer can either completely avoid withholding tax on the payment or withhold tax at a lower rate.
On the form, the Danish company must, among other things, tick one of several possible provisions or tests of the double tax agreement between Denmark and the US according to which the company adheres.
Adhering to one of the tests enables the company to benefit from the double tax agreement.
According to one test, it is a condition that the company's owners are resident in the EU.
When the UK leaves the EU on 31 January 2020, the US is no longer required to consider the UK a part of the EU, although many EU rules are expected to continue to apply to the UK for a transitional period until the end of 2020.
Consequently, some Danish companies, which are part of groups including UK companies, no longer pass the test and may therefore not benefit from the double tax agreement between Denmark and the US.
As a result, payments from the US may be subject to US withholding tax.
Danish companies in groups including UK companies, which have previously submitted a form W-8BEN-E to a payer in the US and expect to receive additional payments from the same payer in the US, should check if the form is still valid after 31 January 2020.
The above article is taken from tax:watch, our electronic English newsletter on Danish Tax and VAT matters. tax:watch is issued on the last Friday of each month and is free of charge. Please sign up here.