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Brussels, 26 June 2008

Direct taxation: Commission requests Denmark to change tax measures which discriminate income from foreign based investment funds

The European Commission has formally requested Denmark to change its tax provisions according to which income from investment funds is taxed at a preferential rate if the latter fulfils detailed requirements that are very difficult or impossible for foreign based investment funds to fulfil. The Commission considers the provisions incompatible with the freedom to provide services and the free movement of capital as guaranteed by Articles 49 and 56 of the EC Treaty and Articles 36 and 40 of the EEA Agreement. The request takes the form of a reasoned opinion (second step of the infringement procedure provided for in Article 226 of the EC Treaty). If there is no satisfactory reaction to the reasoned opinion within two months, the Commission may decide to refer the matter to the European Court of Justice.

Under Danish Law[1], income from investment funds can be taxed as capital gains or as income from shares. The taxation of capital gains is heavier than the taxation of income from shares income from investment funds that fulfil a number of detailed requirements established under the Danish legislation. According to these rules, the funds respecting the prescribed requirements are allowed to benefit from the more advantageous tax treatment in the hands of the investor. Those requirements are so strict, that only Danish investment funds are in practice capable of fulfilling them.

As a result, these provisions discourage Danish investors from investing in investment funds based in other EU or EEA/EFTA states, since they will not be able to benefit from the more advantageous tax treatment, and these provisions thus impede the free provision of services and the free movement of capital as guaranteed by Articles 49 and 56 of the EC Treaty and Articles 36 and 40 of the EEA Agreement.

The Commission's opinion is based on the EC Treaty as interpreted by the Court of Justice of the European Communities in its judgments of 28 April 1998 in Case C-118/96 , Jessica Safir, of 15 May 1997 in Case C-250/95, Futura Participations SA, Singer, and of 14 September 2006 in Case C-386/04, Centro di Musicologia Walter Stauffer.

The Commission's case reference number is 2007/2002.

For the press releases issued on infringement procedures in the taxation or customs area see:

For the latest general information on infringement measures against Member States see:

[1] Mainly Section 16C of Law on taxation of income and Sections 19 and 21 of the Law on taxation of shares.

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