Denmark has no longer been bound by any tax treaty with France since 2009. So far, should a Danish company provide services in France (unless through a French permanent establishment), the remuneration of the services is likely to be subject to:
- A 33.33% withholding tax ("WHT") in France;
- A 22% corporate income tax ("CIT") in Denmark.
Some services are subject to the WHT (e.g. management fees and IT fees), whereas some others are not (e.g. intellectual property such as branding fees or patent royalties).
Inconveniences for Danish tax residents are twofold:
They are subject to an additional tax, which is not fully offset against Danish CIT;
This WHT is computed on a gross amount, meaning that the related expenses paid by the Danish company are not taken into account for the calculation of this WHT. Yet, they would be allowed to deduct these expenses for the calculation of the CIT due in France, should they be French tax company.
The French company's point of view
If the French debtor fail to levy the WHT, it is personally liable to pay in the place of the Danish provider on an increased basis: since the payment is regarded as an "after WHT" payment, the WHT must be levied at 50%. Today, French supreme court "Conseil constitutionnel" stated that this WHT was complying with the provisions of the French constitution (decision #2019-784 QPC).
Fortunately, French tax authorities ("FTA") provide a reimbursement process, which may be initiated either by the French paying company or by the Danish provider.
The reimbursement is subordinated to 2 cumulative conditions:
- The Danish tax legislation does not allow the Danish provider to totally offset the amount of the French WHT against Danish CIT;
- The Danish provider is subject to a higher taxation in France than the one he would have suffered, should it be a French tax resident.
Based on our experience, both of these conditions are generally met.
What to do?
The Danish company has to make 2 separate calculations to determine the amount of the potential reimbursement:
The amount of the theoretical CIT the Danish company would have paid as a French tax resident on the same French income.