Denmark vs EAC

This case revolves around whether the taxable income of H1 and H2 should be increased under Denmark’s Tax Assessment Act, Section 2, by reclassifying payments between related entities as interest or royalties. The case encompasses two separate tax disputes, one involving whether interest should be applied to royalties due between a Danish parent company and its Venezuelan subsidiary and another focusing on classifying extraordinary dividends as royalty payments.

The court ruled that the extraordinary circumstances of Venezuela’s currency restrictions and force majeure provisions in the licensing agreements negated the Ministry of Taxation’s attempt to increase H1’s taxable income for several years. The court found that the Venezuelan subsidiary had made all efforts to remit royalties but was impeded by governmental restrictions beyond its control. The case also involved the classification of dividends as royalty payments, where the court similarly ruled that the Ministry had not sufficiently proven that an independent party would have acted differently under comparable circumstances. As a result, the court dismissed the Ministry’s claim for both cases, reducing the proposed tax increases to DKK 0 for the respective years.