In a significant development for U.S 81-100 Group Trusts, the United States and Denmark signed a new Competent Authority Arrangement (CAA) on 25 March 2025, fundamentally reshaping the tax treatment of these structures under the U.S.–Denmark tax treaty.
This agreement not only overturns years of restrictive interpretation by the Danish Tax Authority (SKAT) but also opens the door to full treaty relief retroactively.
Historically, SKAT denied full treaty exemption claims submitted by U.S. 81-100 Group Trusts, granting only a reduced 15% withholding tax rate on Danish dividends. The rationale for this was that SKAT viewed these trusts as investment vehicles for underlying pension plans rather than qualifying pension funds in their own right.
Due to this strict interpretation, Group Trusts have been excluded from accessing the 0% treaty rate, despite being exclusively operated to benefit pension investors.
The new CAA signed in March 2025 marks a decisive shift. It confirms that 81-100 Group Trusts qualify as “pension funds” under the U.S.–Denmark tax treaty, provided they are operated exclusively or almost exclusively for the benefit of U.S. treaty-eligible residents. Crucially, this recognition applies retroactively from 1 February 2008, offering relief for both historical and future claims.
To support implementation, SKAT initially issued draft administrative guidance on 23 April 2025. This guidance outlined the reclaim process and clarified the statute of limitations under Danish law.
However, the draft guidance fell short in one critical area: documentation. It did not specify what evidence would be required to demonstrate that a Group Trust is operated exclusively or almost exclusively for the benefit of U.S. treaty-eligible residents. There was also ambiguity regarding whether documentation needed to be provided at the umbrella trust level or for each sub-trust.
As a withholding tax specialist servicing over 900 U.S.-based pension funds, including 81-100 Group Trusts with significant investments in Denmark, WTax actively participated in the consultation process and submitted formal comments addressing these gaps. The public consultation period closed on 21 May 2025.
Following this, SKAT has now issued final guidance which includes a brief mention of the required documentation. The starting point is that a list of participants in the Group Trust must be provided to support treaty eligibility. However, SKAT has expressly reserved the right to request additional documentation, such as tax certificates from underlying pension fund investors, where deemed necessary.
Unfortunately, guidance is still lacking regarding the level (umbrella trust level or for each sub-trust) at which reclaims should be filed, as well as what specific information is required to be included in the list of participants.
For 81-100 Group Trusts, this change in interpretation is a welcome development. The recognition of these structures as pension funds under the treaty unlocks access to the full 0% withholding tax rate on Danish dividends, significantly transforming the net returns for eligible investors. Importantly, the CAA applies retroactively from 1 February 2008, meaning that previously ineligible claims may now fall within scope for full treaty relief, provided they remain within the applicable statute of limitations.
The Danish CAA is not an isolated development. In late 2024, the United States and Switzerland signed a Competent Authority Arrangement that clarifies procedures for 81-100 Group Trusts to claim treaty benefits, particularly by reducing documentation burdens and removing administrative hurdles. This procedural change marks a significant step toward improving the practical accessibility of claims for qualified U.S. 81-100 Group Trusts.
Together, these developments suggest a growing alignment among treaty partners on the treatment of U.S. 81-100 Group Trusts. WTax continues to monitor these evolving markets closely and will keep clients informed of any further guidance or opportunities to enhance withholding tax recovery.
If your fund has exposure to Danish equities or needs support evaluating historic eligibility, get in touch with WTax today to explore your reclaim potential.