Consultative Agreement between the Federal Ministry of Finance of the Federal Republic of Germany and the Central Customs and Tax Administration of the Kingdom of Denmark

pursuant to Articles 42 and 44 of the Convention between the Federal Republic of Germany and the Kingdom of Denmark for the Avoidance of Double Taxation with respect to Taxes on Income and on Capital and with respect to Taxes on Estates, Inheritances and Gifts and for Assistance in Tax Matters (hereinafter German-Danish Tax Convention) on the interpretation of Article 18 (2) of the Convention

During negotiations on 20 and 21 September 2005 in Berlin with regard to amendments to the German-Danish Tax Convention, the German and Danish delegations discussed the tax treatment of payments by German professional pension institutions to individuals resident in Denmark.

Both parties agreed that pensions paid by German professional pension institutions (berufsständische Versorgungseinrichtungen), hereinafter named pension schemes (Versorgungswerke), are to be regarded as payments pursuant to the social insurance law of the Federal Republic of Germany and shall thus in accordance with Article 18(2) of the German-Danish Tax Convention be taxable only in the Federal Republic of Germany.

Under section 6(1) of the German Social Security Code, Book VI, the self-employed (e.g. doctors, pharmacists, solicitors, architects, etc.) are exempt from the obligation of statutory pension insurance if, because of a legally-prescribed requirement or an obligation based on a legal statute, they are members of a pension scheme and are, by virtue of a statutory obligation, at the same time members of a professional chamber. Payments made by the pension scheme to a non-resident taxpayer are for the purposes of taxation regarded as other income within the meaning of the German Income Tax Act (Einkommensteuergesetz - EStG) and, accordingly, contributions to the pension scheme are deductible in calculating the taxable income.

The payment of the pension has its legal basis in the fact that the self-employed person has paid contributions to a pension scheme which is subject to the same legal regulation as the obligatory membership of a professional chamber. Because of this legal obligation to make contribution payments, the payments by the pension scheme are to be treated in the same way as those of the statutory pension insurance.

A list of the pension schemes existing under federal state law is attached (as on 3 November 2005). The German competent authority shall notify the Danish Central Customs and Tax Administration of the establishment of any substantially similar pension scheme under German federal state law after the conclusion of the agreement.

Copenhagen, 16  December 2005                                                                              

For the Federal Ministry of Finance                                         For the Ministry of Taxation

(Florenz Hundt)                                                                                     (Ivar Nordland)