The Danish Supreme Court decides the Fidelity case
The Fidelity case concerned claims brough by three undertakings for collective investment in transferable securities (UCITS) for the repayment of Danish withholding tax on dividends received from companies resident in Denmark between 2000 and 2009. The Supreme Court rejected the claims on the grounds that the Fidelity UCITS did not fulfil the conditions for the exemption provided by Danish law.
Background
Danish law allowed UCITS resident in Denmark to apply for an exemption from withholding tax on dividends received from Danish companies. The granting of the exemption turned on two conditions being met: (1) the UCIT must be resident in Denmark; and (2) the UCIT must have Article 16 C fund status. The first condition (UCITS is resident in Denmark) had been held to be contrary to the free movement of capital in 2018 (see ECJ decision here). The second condition (Article 16 C fund status) was met if the UCITS undertook to make a minimum distribution and to withheld from that distribution the tax payable by its members or, after June 2005, if the UCITS calculated a minimum distribution which was taxed in the hands of the members by means of a deduction at source.
The Fidelity UCITS were not resident in Denmark and had not applied to the Danish tax authorities for Article 16 C status. They argued that it was impossible, or extremely difficult, to satisfy the Article 16 C fund status condition, and that they had no incentive to do so, because as non-resident UCITS they did not meet the first condition and were thus ineligible for the exemption in any case.
The judgment of the Danish Supreme Court
The Supreme Court held that the incompatibility of the first condition (UCITS resident in Denmark) with EU law did not mean that the funds were entitled to a repayment of the amounts of dividend taxes withheld. Turning to the second condition (Article 16 C fund status), the Court held that the condition was justified by the need to safeguard the coherence of the tax system and the need to ensure a balanced allocation of taxing rights between Member States, and that it was not a disproportionate restriction on the free movement of capital. The Court added that because the Fidelity UCITS had not applied for an Article 16 C fund status, their claims for a repayment failed because the second condition set out in the legislation for the granting of the exemption had not been complied with.
Return to Listings
Our Insights
Increased Investment in Personal Tax Compliance in the UK (Published in Thought Leaders 4 Private Client)
Advances in technology and increased international fiscal co-operation have made global personal tax compliance initiatives pop up in abundance in recent years. To compound the issue, the Russian invasion of Ukraine and the corresponding economic fallout prompted domestic governments to increase transparency in relation to investments held by wealthy foreign individuals (with a focus on oligarchs).
In the UK, in the context of the cost-of-living crisis, public opinion certainly seems to be in favour of increased accountability for high-net-worth individuals (eg, on 9 October 2022, 63% of Britons surveyed thought that “the rich are not paying enough and their taxes should be increased”).1
HMRC is one of the most sophisticated tax collection authorities in the world and the department is making significant investments in technology in the field of compliance work; they are well placed to take advantage of new international efforts to increase tax compliance, particularly considering the already extensive network of 130 bilateral tax treaties in the UK (the largest in the world).2 The UK was also a founding member of the OECD’s Joint International Taskforce on Shared Intelligence and Collaboration (JITSIC) forum.
This article discusses the main developments in support of the increased focus on international transparency and personal tax compliance in the UK. There are other international fiscal initiatives, particularly in the field of corporate taxation, but such initiatives are beyond the scope of this article.
It should be noted that a somewhat piecemeal approach, with constant tinkering makes compliance difficult for the taxpayer and is often criticised for lacking the certainty that a stable tax system needs to thrive.
This article was first published with ThoughtLeaders4 Private Client Magazine
Case note: Lynton Exports (Alsager) Ltd v Revenue and Customs Commissioners [2022] UKFTT 00224 (TC)
As HMRC continue to apply the Kittel principle to increasing numbers of industries and businesses, taxpayers need to be vigilant about evidential requirements that HMRC must fulfil in order to discharge their burden of proof. Read JHA’s latest insight into the First-tier Tribunal’s decision in Lynton Exports (Alsager) Ltd v Revenue and Customs Commissioners [2022] UKFTT 00224 (TC).
If you require any further information about the Kittel, Mecsek, and Ablessio principles, or any other allegations by HMRC of fraud or fraudulent abuse, please contact Iain MacWhannell (imw@jha.com).
