In March 2025, the United States and Denmark finalized a Competent Authority Arrangement (CAA) clarifying which pension entities or arrangements qualify under “pension fund” status in order to qualify for treaty benefits under Article 10(3)(c) of the 1999 Denmark–U.S. tax treaty. The agreement, now publicly released by the IRS, marks the conclusion of extended discussions between the two tax authorities regarding the treaty treatment of U.S. pension structures, including group trusts governed by IRS Rev. Rul. 81-100. 

Key Treaty Context: Article 10(3)(c) and Article 22(2)(e) 

The treaty provides for a 0% Withholding Tax (WHT) rate, no withholding tax on dividends when the beneficial owner is a “pension fund” resident in the other contracting state, as defined in Article 22(2)(e). That provision applies only if the fund is organized to provide pension or similar benefits to employees and if more than 50% of its beneficiaries are residents of either the U.S. or Denmark. The CAA now formalizes the U.S. and Danish competent authorities’ mutual understanding of which types of U.S. and Danish pension arrangements satisfy those criteria. 

The 81-100 Group Trust Issue 

A major unresolved area prior to the CAA was the treatment of group trusts under 81/100 group trusts. These are tax-exempt collective investment vehicles used by U.S. pension plans to pool assets efficiently. While they are well-established under U.S. law, their qualification under the treaty was ambiguous and particularly concerning the requirement that a legal person “provide a pension or other similar benefits to employees pursuant to a plan.” 

Typically, the Danish Tax Agency (DTA) had routinely denied full WHT refunds to 81-100 group trusts. The DTA accepted a partial reduction from 27% to 15% under Article 10(3)(c), but argued that full exemption was unavailable because the group trust itself does not bear the obligation to pay pensions; that obligation rests with the underlying participating plans. 

Real-world impacts  

Tax-Optimized Cross-Border Dividends 

With this agreement in effect, dividends paid from U.S. companies to Danish pension funds (and vice versa) can now flow tax-free provided they meet the qualification.  

Reduced Uncertainty for Emerging Pension Structures 

As retirement vehicles become more diversified and tech-integrated, this CAA paves the way for FinTech-enabled pensions and international retirement platforms to potentially gain access to favourable treaty terms. 

Retrospective Application 

This agreement applies to dividends paid on or after February 1, 2008. Meaning, eligible pension funds may have grounds to claim refunds for taxes withheld over the past decade-plus. 

Final Thoughts 

The CAA marks the conclusion of technical negotiations between the U.S. and Danish authorities. For affected group trusts, particularly those operating under Rev. Rul. 81-100, the practical outcomes are still in flux. The agreement offers clarity but not closure. As litigation and appeals continue, the legal threshold for qualifying as a “pension fund” under the treaty remains central. For clients holding positions in Danish equities via 81/100 trusts, or similar vehicles, now is the time to assess your reclaim eligibility, legal exposure, and strategic next steps. 

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