The Danes have an affectionate name for their tax man: the "Tax Daddy". And in Denmark, their caring Daddy is everywhere: Take a glass of beer at the famous Nyhaven, buy a McDonald's or jump into a cab and you will soon feel Daddy's effect on your purse.
Denmark is generally understood to be among the most expensive and over-taxed of countries, a place where tax evaders are ruthlessly pursued.
Not a long ago, Danish newspapers had a case of a Dane living in the UK who owes the Danish state a considerable sum. The case ended in the highest court in the UK -- the House of Lords -- and it was declared that it was not the role of the UK to enforce other country's tax policies.
The decision caused outrage in Denmark. One can imagine the reaction of the Danish authorities when presented with a similar miscreant tax dodger from the UK. Will Copenhagen replace Zug, Switzerland as the preferred bolthole for the tax-shy? Let us hope so -- Copenhagen's nightlife is far preferable to Zug’s, I assure you!
Surprising as it may be, high-tax Denmark has long provided ways for shrewd non-residents to cut their tax bills. Let us look at -- and raise a glass of Carlsberg to -- the Danish zero-tax holding company.
Despite what most people think, holding companies do not only serve to consolidate ownership of international conglomerates. Holding companies prove equally useful to private investors who hold a wide and geographically diverse portfolio of shares.
In the context of tax planning, the attraction of a holding company is its ability to receive dividend payments subject to little or no tax. Typical tax haven companies often do not fit this purpose, as they are unable to remove withholding tax due to the lack of double tax treaties.
And this is where Denmark comes in: The country's corporate regime allows the registration of respectable, low-profile yet completely tax-free holding companies.
Although there are a few preconditions for the zero-tax status -- dividends can only be paid on free of tax to an entity owning at least 25% of the Danish company, and there is a minimum holding period of one year -- the financial benefit outweighs the restrictions.
Overseas corporations -- including major players such as PepsiCo -- have set up over 500 holding companies in Denmark in the past two years. PepsiCo's holding company, PepsiCo Investments, is managed out of small office in Copenhagen by a single tax lawyer.
The demand for Danish holding companies has created a dynamic incorporation industry in Copenhagen.
Requests for speedy formations, including opening of local bank accounts, are met with helpful attitude and efficiency. Requests that local nominees be appointed as directors are common and well understood; nominee directors are considered to be a matter of everyday practicality rather than an anonymity issue. In other words, you are unlikely to come across a sour-faced bureaucrat suspecting you of being a mischievous scoundrel.
By design, Danish -- or indeed Dutch -- holding companies are meant to receive income from a variety of different sources and then pass the funds onto another corporation in another location. Banks normally hate this kind of "pass-through" activity; the Danes and the Dutch expect it.
Denmark is about as far as you can get in the minds of the tax cartel from an offshore haven. Well and truly off the radar map, the country did not warrant inclusion in the OECD's notorious "name and shame" list despite offering tangible tax competition benefits.
Nevertheless, remember that a Danish corporation is not a "tax-free -- do what you like" brass plate in the same way as a typical Caribbean tax haven company. Seek qualified advice before involving yourself in a strategy which might or might not suit your individual needs.