Tax Treaty Case Law around the Globe 2014

S. 95Chapter 9 Denmark: "Arm's Length" under Article 9(1) of the Denmark-Czech Republic Tax Treaty

Søren Friis Hansen

9.1. Introduction

The most important Danish tax treaty case of 2013 is the case decided by the Højesteret (Supreme Court) on 28 June 2013. The case, reported as SKM2013.699.HR, deals with the question of arm's length transactions and application of the uncontrolled price method based on article 9 of the Denmark-Czech Republic 1983 Tax Treaty (corresponding to article 9 of the OECD Model). The main question of the case was whether an H1 A/S (a Danish aktieselskab or public limited company) could deduct the full loss that it suffered as a result of the conversion of 80% of its claim against an H2 a.s. (a Czech public limited company) into share capital because a comparable independent creditor would have suffered a loss of that size. The contention of the Danish tax authorities was that an H1 A/S should only be allowed to deduct a proportional part of its taxable loss, corresponding to the part of its claim against an H2 a.s. that was actually converted into share capital.

9.2. Facts of the case

9.2.1. The factual background and legal base

The litigation began with a decision of...