Reconstructing the Treaty Network– Danish Branch Report

Copenhagen Business School, CBS LAW Research Paper No. 20-31

The final version of this paper has been published in Cahiers de droit fiscal international, vol. 105, p. 323-338 (2020)

23 Pages Posted: 12 Aug 2020 Last revised: 5 Oct 2020

Date Written: August 10, 2020


On 28 March 2019, the Danish Parliament adopted a bill ratifying the OECD Multilateral Instrument (MLI), and on 30 September 2019 Denmark deposited its instrument of ratification. Accordingly, the MLI will wield influence on Denmark’s covered tax treaties as of 1 January 2020. Denmark does not have an official model convention. Instead, with certain deviations, Denmark’s point of departure for the negotiation of tax treaties is the OECD Model Tax Convention on Income and Capital (hereinafter the OECD Model). Denmark’s tax treaties typically contain a preamble stating that the purpose of the treaty is both to promote avoidance of double taxation and to prevent tax evasion. Moreover, Denmark’s tax treaties normally contain the anti-avoidance rules directly mentioned in the OECD Model itself.
As the aim of the MLI is to mitigate base erosion and profit shifting related to tax treaties, the Danish government was of the opinion that the content of the MLI should apply to all of Denmark’s tax treaties, despite the fact that they are not completely alike. When signing the MLI, Denmark therefore listed 65 out of its 70 tax treaties as covered tax agreements. With respect to the remaining tax treaties, it has been decided to (wholly or partly) implement the content of the MLI through other complying instruments.
Even though Denmark has decided to include all elements of the MLI, a number of choices still had to be made between the different available alternatives in some of the MLI provisions. With respect to general anti-avoidance provisions, Denmark has decided to apply the principle purpose test (PPT). Denmark’s preference for the PPT was no surprise as Denmark had already implemented a similar OECD inspired PPT-rule in domestic law in 2015. However, in line with article 7(7)(a) of the MLI, Denmark will apply the simplified limitation on benefits provision (SLOB) if the treaty partner has decided to adopt the SLOB.
The relationship between domestic Danish law and international law is based on a dualistic principle and Denmark’s ratification of the MLI required a statutory basis, which was established by the parliament’s enactment of a law. Constitutionally, nothing hinders the Danish parliament from passing a law that is in conflict with the MLI. However, it is generally recognized that Danish authorities and courts should advance an interpretation of Danish law that makes it compliable with Denmark’s international law obligations and should presume that the intention of the parliament has not been to enact legislation in breach of Denmark’s obligations. Pursuant to Danish case law, the Commentary to the OECD Model plays a significant role when it comes to interpretation of Denmark’s tax treaties. In this context, it must be expected that the Explanatory Statement to the MLI as well as the OECD reports, on which the MLI rests, will also constitute important means of interpretation onwards. All in all, even though Denmark’s ratification of the MLI must be expected to increase legal complexity and uncertainty in some areas, Danish businesses and lobby groups have generally been quite positive towards the MLI. An important reason for the positive attitude was the fact that at the end Denmark decided to opt for mandatory binding arbitration. Accordingly, the prevailing opinion appears to be that a sensible balance has been struck.

Keywords: Tax law, Danish law, OECD, International tax law

JEL Classification: K34, K33, H20, H26

Suggested Citation

Koerver Schmidt, Peter, Reconstructing the Treaty Network– Danish Branch Report (August 10, 2020). Copenhagen Business School, CBS LAW Research Paper No. 20-31, The final version of this paper has been published in Cahiers de droit fiscal international, vol. 105, p. 323-338 (2020), Available at SSRN:

Peter Koerver Schmidt (Contact Author)

Copenhagen Business School - CBS Law ( email )

Porcelaenshaven 18B, 1 floor
Frederiksberg 2000

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