Contents

This section concerns the opportunities for MAP outside the EU.

The section includes:

  • Double taxation treaties
  • Multilateral Convention of 24 November 2016 to Implement Tax Treaty Related Measures to Prevent Base Erosion and Profit Shifting (‘Multilateral Instrument’ or ‘MLI’)

Double taxation agreements

Just as within the EU, Denmark has entered several double taxation treaties with non-EU countries that are designed, among other things, to prevent transfer pricing double taxation.

Double taxation treaties both within and outside the EU adhere to by and large the same systemisation. This is because they are based on the same models to a very significant extent.

There are two basic models for double taxation treaties: The OECD Model Convention and the UN Model Convention. The Danish model agreement, known as the ‘Danish Draft’, is based on the OECD Model Convention, but with some deviations in a number of respects.

However, a major difference between double taxation treaties within and outside the EU is that an arbitration clause is inserted in individual double taxation treaties concluded with non-EU countries or via the MLI, as described below.

Arbitration provision

Since 2008, the OECD Model Convention has included an arbitration provision for cases where the competent authorities cannot reach agreement. See article 25(5).

An arbitration provision is inserted in some of the newer double taxation agreements. See the treaties with Switzerland, Israel and Japan. See these treaties for details of when the arbitration provisions apply. They have all - among other things - waited for an equivalent provision in a double taxation agreement between Denmark and a third country to take effect.

Under article 18, Denmark has adopted the arbitration provisions of part VI of the multilateral convention. The arbitration provisions thereafter apply to Denmark’s notified double taxation treaties (covered tax agreements) when the other party uses the same option. See section C.F.8.3.1 and the description below.

Multilateral Convention of 24 November 2016 to Implement Tax Treaty Related Measures to Prevent Base Erosion and Profit Shifting (‘Multilateral Instrument’ or ‘MLI’)

The Multilateral Convention (MLI) has been drawn up as part of the OECD’s and G20 countries’ project to prevent base erosion and profit shifting, called the Base Erosion and Profit Shifting (BEPS) project. This project included the development of a multilateral convention under which the double taxation treaties already in force could be amended in a simple way to prevent base erosion and profit shifting, based on agreement between the countries concerned.

The MLI makes it possible to revise/update current double taxation treaties in specific areas without any need to negotiate amendment protocols. The Multilateral Convention will constitute the necessary legal authority for such amendments.

As stated above, Denmark has opted for, among other things, the arbitration provisions in part VI of the convention. The arbitration provisions thereafter apply to Denmark’s notified double taxation treaties (covered tax treaties) when the other party uses the same option.

In relation to a typical double taxation treaty, this means that article 25 of the agreement (the procedure for concluding reciprocal agreements) is amended by the insertion of the arbitration provisions.

The Mutual Agreement Procedure (MAP) in a given double taxation treaty constitutes the legal basis for arbitration under the MLI. Arbitration will thus solely be considered if the tax dispute under MAP has not been resolved by the competent authorities within two years of acceptance of the request by the competent authorities.

Under article 28 of the Multilateral Convention, it is possible to make reservations about the scope of application of the arbitration provisions and article 36 lays down specific rules for when part VI takes effect.

Denmark has made reservations in the following areas:

  • Part VI of the convention (Arbitration) does not apply to covered tax agreements established between Denmark and other EU member states, since arbitration provisions in the EU Arbitration Directive already apply. See sections C.F.8.4 and C.D.11.15.2.2.2. See the wording of the reservation here:" Part VI (Arbitration) of the Convention shall not apply to cases that fall within the scope of application of the Convention on the Elimination of Double Taxation in Connection with the Adjustment of Profits of Associated Enterprises (90/436/EEC) as amended, of Council Directive (EU) 2017/1852 on tax dispute resolution mechanisms in the European Union, or subsequent regulation."
  • Part VI of the convention (Arbitration) does not apply to cases where a party has imposed penalties on a natural person or legal entity for fraud, gross negligence or wilful default.

Disputes involving enterprises in Denmark may therefore be resolved by arbitration under the MLI as from 1 January 2020. However, before the date on which unresolved issues in a case are first eligible to be submitted to arbitration, an agreement must be concluded between the competent authorities concerning the minimum information necessary for the competent authorities to undertake substantive consideration of the case, see article 19(10) of the MLI. When this agreement is notified, it must also be stated how cases initiated before 1 January 2020 will be processed.