The facts
Nycomed A/S was a Danish pharmaceutical company and the principal operating entity of the Nycomed group, a European pharma business ultimately acquired by Takeda Pharmaceuticals of Japan in 2011 for approximately US$14 billion.
In 2005, a consortium of private equity (PE) funds acquired the Nycomed group. The initial acquisition was financed partly through external debt. In late 2006, that debt was refinanced through a restructuring that introduced new holding entities between the PE funds and the Danish operating company. The timing was not coincidental — Danish withholding tax on interest payments to foreign group companies had been introduced with effect from 1 May 2006.
The structure put in place was as follows. Nycomed Denmark A/S borrowed EUR 501 million from its immediate parent, Nycomed Sweden Holding II AB, at EURIBOR plus 8 percentage points. Nycomed Sweden Holding II AB was funded through an equity injection from its own parent, Nycomed Sweden Holding I AB, which had simultaneously borrowed EUR 499 million from Nycomed S.C.A. SICAR — a Luxembourg entity owned by the PE fund consortium — at EURIBOR plus 7.9 percentage points.
The result was a back-to-back arrangement: interest flowed from Denmark upward through two Swedish holding entities to the Luxembourg SICAR. In the income years 2007, 2008 and 2009, interest accrued on the Danish loan of approximately EUR 61 million, EUR 76 million and EUR 62 million respectively. The Swedish entities passed substantially all of this upward through group contributions, retaining minimal income themselves. The Danish tax authorities raised an assessment of DKK 369 million in withheld interest tax.
The litigation
CJEU · February 2019 · preliminary ruling (Case C-118/16)
The case was one of six joined cases referred to the Court of Justice of the European Union (CJEU) on the interpretation of the EU Interest and Royalties Directive (IRD). The CJEU ruled that a general prohibition of abuse exists in EU law and must be applied by all member states. It also ruled that the Luxembourg SICAR — which enjoyed an objective exemption from corporate income tax on interest income under Luxembourg law — could not qualify as a company of a member state within the meaning of the IRD. The IRD exists to ensure interest is taxed once in a single member state; it cannot apply where the receiving entity is effectively exempt from tax on that income. The cases were referred back to Danish courts to assess whether the specific structures constituted abuse.
Eastern High Court (Østre Landsret) · November 2021 · tax authority prevails
The High Court found that the Swedish holding entities were not beneficial owners of the interest — they were conduit companies with no independent commercial function. It also found that Nycomed Denmark A/S had acted negligently in failing to withhold, making it directly liable for the tax.
Danish Supreme Court (Højesteret) · 4 May 2023 · tax authority upheld
The Supreme Court upheld the High Court’s judgment, building on its January 2023 ruling in the parallel dividend cases. The restructuring — insertion of Swedish and Luxembourg entities between the PE funds and the Danish company — was treated as a single, pre-arranged tax arrangement. The inserted companies had no independent commercial function and were not protected by the IRD or the relevant double taxation agreements.
Most significantly, the Supreme Court found that it could not be established who was the beneficial owner of the interest after it had passed through the conduit entities. The taxpayer had not produced sufficient evidence to trace the interest to any ultimate beneficial recipient. The PE fund investors themselves were not established as beneficial owners. The court held this constituted abuse, and that the DKK 369 million withholding tax liability stood.
ajiho commentary
The structure was built for one purpose — and the courts knew it
The restructuring in late 2006 occurred immediately after Denmark introduced withholding tax on outbound interest. The back-to-back loan rates were near-identical. The Swedish entities had no employees and no independent decision-making authority. The Supreme Court treated the entire arrangement as a pre-ordained tax structure and applied the EU abuse of rights doctrine accordingly. Structures whose sole identifiable purpose is to eliminate withholding tax will not receive treaty or directive protection.
Proving beneficial ownership is the taxpayer’s burden
The most striking aspect of the Supreme Court’s reasoning is the consequence of the taxpayer’s failure of proof. The court could not trace the interest to any beneficial owner — and rather than resolving that uncertainty in the taxpayer’s favour, treated it as fatal to the taxpayer’s case. Groups relying on treaty or directive protection for interest flows must be able to demonstrate — with contemporaneous documentary evidence — who the beneficial owner of that interest is and that it has genuine substance in its jurisdiction.
The SICAR structure did not help
The Luxembourg SICAR’s objective exemption from tax on interest income disqualified it from IRD protection entirely under the CJEU’s 2019 ruling. PE structures using Luxembourg SICARs, RAIFs, or similar vehicles that benefit from objective tax exemptions on interest income should not assume treaty or directive protection is available for inbound interest from EU operating subsidiaries.
This risk does not expire
The income years at issue were 2007 to 2009. The assessment was raised in 2010. The final judgment came in 2023 — thirteen years later. Legacy PE acquisition structures put in place before the CJEU clarified the law may still carry unresolved withholding tax exposure across multiple EU jurisdictions.
What this means for your business
If your group has an EU subsidiary paying interest to a foreign parent entity — particularly one in a low-tax jurisdiction or one benefiting from an objective tax exemption on interest income — this case demands attention.
On beneficial ownership documentation: maintain contemporaneous evidence of who the beneficial owner of interest is, that it has genuine commercial substance, and how the interest is taxed in its jurisdiction. The absence of this evidence was the decisive failure in this case.
On holding entity substance: an entity inserted between a borrower and its ultimate investors must have independent decision-making authority, economic exposure, and a rational business purpose beyond tax optimisation. Entities that pass through substantially all interest income without retaining any economic benefit will be treated as conduits.
On SICAR and equivalent structures: where the ultimate recipient of interest benefits from an objective tax exemption on that income, the IRD cannot be relied on to eliminate withholding tax at source. This applies to Luxembourg SICARs and equivalent structures elsewhere.
Case references
Takeda A/S v Danish Ministry of Taxation · Cases 116/2021 and 117/2021 · Højesteret · 4 May 2023
CJEU — Joined Cases C-115/16, C-118/16, C-119/16 and C-299/16 · 26 February 2019
English summary available on domstol.dk; CJEU rulings on curia.europa.eu.