Holding companies are often used as a form of financial funnel. By having a company, located in a suitable jurisdiction, holding the shares in a variety of companies its possible to ensure that the profits are funelled into a low tax, or tax advantageous environment.

Typical advantages of a holding company

Incoming Dividends: Incoming dividends remitted by the subsidiary to the holding company should either be exempted from or subject to low withholding tax rates in the subsidiary's jurisdiction.

Dividend Income Received: Dividend income received by the holding company from the subsidiary should either be exempted from or subject to low corporate income tax rates in the holding company's jurisdiction.

Capital Gains Tax on Sale of Shares: Profits realized by the holding company on the sale of shares in the subsidiary should either be exempt from or subject to a low rate of capital gains tax in the holding company's jurisdiction.

Outgoing Dividends: Outgoing dividends paid by the holding company to the ultimate parent corporation should either be exempt from or subject to low withholding tax rates in the holding company's jurisdiction.

In the context of tax planning, the attraction of a holding company is its ability to receive dividend payments subject to little or no tax.

Typical tax haven companies often do not fit this purpose, as they are unable to remove withholding tax due to the lack of double tax treaties.

Denmark

The combination of Denmark double tax treaty network and its holding company regime means that there are currently 35 major countries who with proper structuring can route their dividends through Denmark and not incur any withholding taxes at any stage. In about another 40 other countries withholding taxes are further substantially reduced by reason of the treaty network

Belgium

In Belgium capital gains are deemed corporate income and are taxed at the normal rate. By way of exception capital gains realized by a Belgian parent corporation on the sale of shares in an EU on non-EU subsidiary are exempt from corporate income tax in Belgium irrespective of the size or duration of shareholding.

Dividends paid by Belgian subsidiaries to EU parent corporations are exempt from Belgian withholding taxes provided the EU parent corporation has held 25% of the shares in the Belgian subsidiary for at least 12 months. If the parent corporation is not an EU entity or if these conditions are not otherwise satisfied then a standard withholding tax rate of 25.75% applies on outgoing dividends unless that rate has been reduced (usually to 15% or less) by the provisions of a double taxation treaty. Belgium has 66 double taxation treaties in place. (Denmark has 78 and the UK has 110).