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Denmark Corporate - Significant developments

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On 15 November 2017, a proposal was set forth by the Danish Parliament to amend existing tax law regarding the deduction of payroll costs.

A ruling from the Supreme Court in 2017 stated that it be required that payroll costs be separated into costs that are incurred in connection with the operations of the company and those that are incurred in connection with acquisitions/restructurings. Costs in connection with acquisitions/restructurings are non-deductible.

The proposed bill seeks to amend this, so that all payroll costs incurred by a company in regards to its own employees will become deductible. The bill was adopted with effect from 1 January 2018, and salary expenses should therefore generally be tax deductible. The change applies retroactively until the tax year of 2008.

Following up on Action 5 of the base erosion and profit shifting (BEPS) initiative, Denmark has also agreed to participate in the compulsory spontaneous exchange of information. This will include (i) binding tax rulings related to beneficiary tax regimes, (ii) cross-border advance pricing agreements (APAs) and all types of cross-border binding rulings related to transfer pricing, (iii) cross-border binding rulings whereby a one-sided reduction of the taxable income has been made without this being reflected in the taxpayer’s financial statements, (iv) binding rulings regarding permanent establishments (PEs), and (v) binding rulings regarding conduit companies.

The information is to be exchanged with all Organisation for Economic Co-operation and Development (OECD) and G20 countries, as well as any other countries that adopt the BEPS initiatives. However, the exchange will only take place if the exchange of information is mutual with the other country. Information on cross-border binding rulings or pre-approved pricing schemes amended or renewed after 31 December 2016 must be exchanged within three months after the end of the half of the calendar year with which it relates to (i.e. deadlines are 30 March and 30 September). Information that is amended or renewed within a period of five years before 1 January 2017 must be exchanged before 1 January 2018, subject to certain exceptions. Taxpayers will be informed prior to exchange.

With effect from 1 January 2017, companies filing complaints against Danish Tax Authorities will now have the right to cost compensation. The cost compensation scheme helps to increase legal certainty, and the proposal therefore reinstated that there should be 100% cost compensation where the company has been compliant, while it is possible to be compensated for 50% of the costs if the case is lost.

For most companies, 31 December 2017 was the first reporting deadline in regards to transfer pricing documentation. The new requirements include an obligation to structure the documentation in a master file and local files. In addition, groups with a consolidated turnover of 5.6 billion Danish kroner (DKK) are required to file a country-by-country (CbC) report, which will provide an overview of the economic activities of the group as well as the taxes paid. If the group is not filing in Denmark, but instead in another country, the group must inform the Danish Tax Authorities of which company in the group is reporting and which country this company is tax resident. The reporting may be done digitally.

On 21 April 2015, the Danish Parliament adopted a proposal to include an international circumvention provision in Danish tax law. This provision has had effect since 1 May 2015, and applies to arrangements or series of arrangements and transactions relating to obtaining benefits through tax treaties, regardless of when the treaties have been entered into force. The provision was an implementation of the amendment to the Parent-Subsidiary Directive, but was extended to apply to the Interest-Royalty Directive and Tax Merger Directive and all double tax treaties (DTTs). In the comments to the provision, it is stated that the provision is meant to correspond to the wording of the Parent-Subsidiary Directive, and the Danish provision should be strictly interpreted in accordance with this and any case law from the European Court of Justice (ECJ).

There have since been a few cases where the above-mentioned provision has been tested. In SKM.2017.333.SR, the Tax Council found that the main purpose of the relocation of the parent company from the Bahamas to Luxembourg, immediately before a planned relocation of a Danish subsidiary to Luxembourg, was to obtain a tax benefit that counteracted the aim and purpose of the Parent-Subsidiary Directive. However, in a more recent case, SKM.2017.626.SR, the Tax Council found that the provision did not apply, and indeed the liquidation proceeds distributed from a Danish subsidiary to a Dutch parent company (owned by a trust in Jersey and Guernsey, which was owned by an individual) should not be subject to Danish taxation. The Authorities highlighted that the establishment of the Dutch parent company could not in itself be considered abuse of benefits in relation to the Parent-Subsidiary Directive. This was partially due to the fact that the operative companies that were owned by the Danish company were also based in the Netherlands and also due to the fact that the individual owning the trust would not be receiving any distributions, but instead the trust would be making donations to charitable organisations.

On 28 November 2017, the Danish Parliament adopted a new temporary tax credit regime for oil and gas companies, advancing the time of deduction and increasing depreciation on production assets to 20% and uplift to 6.5% in six years (39% in total), in order to encourage investments in the Danish part of the North Sea.

Last Reviewed - 08 December 2017

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