DT5910 | Double Taxation Relief Manual: Denmark: notes

Hired out employees (Article 15)

‘Hired out’ employees are those whose services are hired out by their employer to another employer who effectively directs and controls the activities of the employee, the first employer having no responsibility for carrying out the work on which the employee is engaged. Article 15(3) of the convention, which was introduced by the 1991 amending convention, denies the employee any exemption from tax in the country in which they are working they might otherwise have obtained under Article 15(2).

The provisions of Article 15(3) are designed to prevent the exploitation of the relief contained in Article 15(2) in circumstances where an individual is effectively working on behalf of a company or organisation in the country where they are carrying out their duties, but has arranged an employment through a company or organisation located in the other country, perhaps with the intention of utilising the exemption in Article 15(2) or avoiding other provisions relating to taxation, social security contributions or employment applicable in the country in question to resident but not non-resident employers.

Thus, if a resident of Denmark is employed by a Danish resident employer who hires out their services to another employer who controls the exercise of the employment in the UK, they will be liable to UK tax on the remuneration they get from the exercise of their employment in this country even if they fulfil all three conditions (a), (b) and (c) of Article 15(2).

Seamen (Article 15)

Remuneration derived by a UK resident from employment aboard a ship operated by a shipping company which is a resident of Denmark is taxable only in Denmark provided that the income is actually ‘subject to tax’ (see INTM162090) in Denmark. Under a provision of Danish law which came into effect on 1 January 1989, seamen became exempt from Danish tax if they were employed on a Danish ship on the Danish International Shipping Register. At the time the legislation was introduced, the seamen’s remuneration was, however, reduced to a ‘net salary’ or ‘net amount’ of about half the salary that would have been payable had the remuneration remained taxable in Denmark. Although these individuals do not therefore actually pay Danish tax, Article VII of the second amending convention provides that remuneration derived aboard a ship which is registered in the Danish International Shipping Register is deemed nevertheless to be subject to tax in Denmark so that the remuneration will not be chargeable to tax in the UK. This provision in the convention has retrospective effect to 1 January 1989, the date on which the Danish legislation was introduced.

Offshore activities (Article 28A)

Article 28A of the convention, which was introduced by the 1991 amending convention, contains provisions for the treatment of activities in connection with the exploration for or exploitation of oil or gas in the seabed and subsoil (offshore activities). The Article provides that:

1. an enterprise of one country which carries on such activities in the other country is deemed to be carrying on a business in the other country through a permanent establishment

2. a resident of one country who carries on such activities in the other country consisting of professional services or other activities of an independent character is deemed to be performing those activities from a fixed base in the other country

3. notwithstanding (1), profits derived by an enterprise of one country from the operation, in connection with such activities, of ships or aircraft which are in their existing state designed primarily for transporting supplies or personnel, or of tugboats or anchor handling vessels, are taxable only in the country in which the place of effective management of the enterprise is situated. This applies to profits from the operation of ships or aircraft unless they are contracted to be used mainly for purposes other than transporting supplies or personnel to or between places where offshore activities are being carried on

There are also provisions for the taxation of residents of each country on earnings from employments in connection with such activities.

Pension scheme contributions (Article 28)

Article 28(3)(a) of the convention as amended by the 1996 amending convention provides that a UK-resident employee who is a member of a Danish pension scheme (including a personal pension scheme) and who continues to contribute to that scheme while working in the UK for their Danish employer or an associated employer, may, subject to certain conditions, qualify for tax relief in the UK in respect of their contributions to the Danish pension scheme. In these circumstances the employer’s contributions to the scheme are allowable in computing the employer’s profits in the UK (Article 28(3)(b)(ii)) and should not be treated as part of the employee’s taxable remuneration, for example as a benefit in kind (Article 28(3)(b)(i)).

To qualify for relief all of the following conditions must be met:

1. the individual must be employed in the UK by the employer who was their employer immediately before the individual began to exercise their employment in the UK or who is `associated’ with that employer. Employers are associated where one participates directly or indirectly in the management, control or capital of the other, or the same persons participate directly or indirectly in the management, control or capital of each of them

2. the individual must have been a member of the Danish pension scheme immediately before becoming a resident of the UK

3. the Danish scheme must be accepted by the UK authorities as corresponding to a pension scheme which is recognised for tax purposes by the UK. For this purpose, a scheme is recognised for tax purposes if an individual’s contributions to the scheme qualify for tax relief or payments made to the scheme by the employer are not deemed to be taxable income of the employee