Denmark and France recently signed a new treaty to prevent the double taxation of income, including income from pensions earned in one country but paid in the other. The treaty still must be approved and ratified by the parliaments of both countries before it can go into effect. Once approved, the treaty will go into effect in 2023, at a date yet to be determined [Denmark-France treaty (in French), signed 2 February 2022].
The tax treaty is aimed at preventing the double taxation of income, and is the first new double taxation treaty between the countries in 13 years. The main provisions relating to individual income taxation generally follow the standard provisions of the Organisation for Economic Co-operation and Development (OECD) tax treaty model.
Among other provisions, the agreement ensures income from pensions will be taxed in the country where the pension was earned (i.e., the country of source), rather than the country of residence.
According to the Danish Ministry of Taxation, Danish pensions paid to Danish citizens living in France will be taxed in Denmark via a method that takes the French tax rate into account. The ministry said it expects to capture more tax revenue from pension payments as a result, given that France has the lower tax rate of the two countries. The new treaty also will significantly reduce administrative burdens for Danish companies in France.
The treaty provides a tax credit method for eliminating the double taxation of the income of French citizens living in Denmark.
The two countries have strong trade relations, with recent news reports estimating there to be around 400 Danish companies doing business in France, with more than 40,000 employees working there. Correspondingly, more than 11 million euros' worth of French direct investment went to registered entities in Denmark during 2020.
Mavanee Anderson, Esq., is Editor of PayState Update and Payroll Information Resources for the APA.