On March 23, 2023, Denmark passed L17 2022/2023 and thereby introducing (again) a double tax treaty between Denmark and France. The new double tax treaty will address the taxation of pensions and strengthen the economic relations between the two countries. The agreement comes after years of negotiations and will replace the previous agreement, which Denmark terminated in 2008 due to issues with the taxation of Danish pensions in France.
The new tax treaty ensures that Denmark has the right to tax payments from pension schemes where Denmark has provided a tax deduction for contributions as the tax treaty also includes an “inverted credit” principle, meaning Denmark will grant relief for the tax paid in France against the tax payable in Denmark. Besides the “inverted credit” principle, the double tax treaty is generally following the principles of the OECD Model Tax Convention.
Even though the double tax treaty has been introduced, the time when the double tax treaty will come into force will await confirmation from the Danish Minister of Tax – we expect this will enter into force for the income year 2024.
Why is this great news?
- Compliance: The new agreement will provide clear guidance on the taxation of pensions for Danish employees working in France. By following the agreement, companies can ensure they are compliant with both Danish and French tax laws, reducing the risk of penalties and fines.
- Correct payroll treatment: The agreement will help companies ensure the correct payroll treatment of Danish employees working in France, minimizing the risk of errors and disputes with tax authorities.
- Improved cash flow: The agreement will provide relief for the tax paid in France against the tax payable in Denmark. This will improve the cash flow of Danish companies and reduce the risk of double taxation.
- Attract and retain talent: By providing clarity on the taxation, the new agreement will help Danish companies attract and retain talent in France, reducing turnover and recruitment costs.
- Strengthened business relationships: The new agreement will strengthen the economic relations between Denmark and France, making it easier for Danish companies to do business in France and vice versa.
How can we assist you?
Are you a Danish company who are operating or wants to operate business in France? Let us help you navigate the new tax laws and requirements.
What we will do for you:
1. First, we will inform you in your specific situation. We have a extensive knowledge which can help understand the details of the new agreement, including the provisions related to pensions and other benefits.
2. We will then make sure that you are following all requirements related to compliance, reporting, and withholding.
3. On top of that we will ensure that the payroll reports are handled correctly for your employees working in France, including any relevant tax withholding requirements.
What you will get out of it:
1. Avoiding costly penalties or other legal issues that could arise from non-compliance.
2. Ensuring that employees receive the proper compensation and benefits they are entitled.
3. Minimizing your overall tax burden.
Conclusion
In conclusion, the new double tax treaty between Denmark and France addresses the taxation issues faced by Danish pensioners and businesses operating in France. The agreement ensures that Denmark can tax pension payments to individuals residing in France, while also granting relief for the tax paid in France. For Danish businesses operating in France, the agreement provides certainty and stability in terms of taxation, ensuring compliance and avoiding potential disputes.
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