Denmark

Defensive measures against countries and territories on the European Union (EU) (black)list of non-cooperating tax jurisdictions

There has been a proposal for legislation regarding amending Section 5 H of the Danish Tax Assessment Act. The suggested changes involve the additions of Antigua and Barbuda, Belize, and Seychelles to the blacklist of non-coorporative tax jurisdictions, while Costa Rica, the British Virgin Island, and the Marshall Islands are removed. If the law is adopted, it will come into effect on 1 February, 2024. 

The primary purpose of this proposal is to align the list outlined in Section 5 H, which identifies countries subject to Danish defensive measures (tax sanctions), with the EU’s list of non-cooperative tax jurisdictions (EU’s haven blacklist). This alignment follows the recent update made through the Council decision on 17 October, 2023. 

In this decision, Antigua and Barbuda, Belize, and Seychelles were incorporated into the EU’s blacklist due to their failure to meet the requirements regarding the exchange of tax information upon request. Furthermore, Costa Rica, the British Virgin Islands, and the Marshall Islands were removed from the list. Notably, Costa Rica and the British Virgin Islands now appear on the so-called observation list. 

The rule on defensive measures in Section 5 H of the Danish Tax Assessment Act include the following blacklist countries and territories per 1 February, 2024:

• American Samoa
• Anguilla
• Antigua and Barbuda
• Bahamas
• Belize
• Fiji
• Guam
• Palau
• Panama
• Russia
• Samoa
• Seychelles
• Trinidad and Tobago 
• Turks and Caicos Islands
• US Virgin Islands
• Vanuatu

The following two defensive measures apply:

• Refusal of deduction for certain payments, so that individuals and companies, etc. cannot deduct payments to related-party recipients who are resident in countries or territories on the blacklist, just as such payments must not be included in any other way in the statement of the taxable income.
• Persons and companies that are domiciled in countries or territories on the blacklist and that receive dividends from main shareholder shares, subsidiary shares, or group company shares must pay a final gross tax of 44% of such dividends.

See the Deductions section for more information about the restriction of deductions of certain payments and the Withholding taxes section for more information about the gross tax of 44% on dividends.

Increase in corporate income tax (CIT) for financial companies 

Financial companies are imposed an increased CIT rate from 22% to 25.2% in 2023 and 26% in 2024. Financial companies include banks, mortgage credit institutions, investment management companies, and insurance companies.

The increase in CIT is connected with the adoption of a new bill on early retirement in Denmark, which is partly financed by this increase.

Introduction of limited tax liability when establishing, operating, or otherwise using artificial islands, installations, or facilities in Denmark's exclusive economic zone  

The bill seeks to equalise Danish and foreign companies by constituting permanent establishment (PE) on companies who are engaged in establishing, operating, or otherwise using artificial islands, installations, or facilities when these activities are carried out in Denmark's exclusive economic zone, i.e. outside the 12 nautical mile limit. As a result, these activities become subject to limited tax liability as a consequence of the PE. 

A PE is not established when the activities performed are linked to the establishment and use of submarine cables and pipelines that are used exclusively for transit through Denmark's economic zone.

The bill was adopted 1 June, 2023. Parts of the law came into effect on July 1, 2023, while the entire law takes effect from January 1, 2024.

New DTT between Denmark and France

On 23 March, 2023, the Danish Parliament adopted a proposal to implement a DTT with France. 

The former DTT was terminated by Denmark in 2008 because Denmark thought it unacceptable that pensions financed by the Danish state could only be taxed in France.

The treaty distributes taxing rights on income between the two countries and provides important measures to prevent international tax evasion and avoidance. Furthermore, companies and citizens of the respective countries will be met with fewer administrative burdens. 

The treaty applies from the beginning of the calendar year following the ratification of the treaty by both countries.

France ratified the treaty on 13 December, 2023, making the treaty effective from 1 January, 2024.

New DTT between Denmark and Algeria

On 29 November, 2023, the Danish Parliament adopted a proposal to implement a DTT with Algeria. 

The treaty, signed 30 September, 2021, is the first of its kind between the two countries. The treaty distributes taxing rights on income between the two countries and provides important measures to prevent international tax evasion and avoidance.

The treaty applies from the beginning of the calendar year following the ratification of the treaty by both countries. Algeria has yet to ratify the treaty. If Algeria ratifies the treaty during 2024, the treaty could take effect from 1 January, 2025.

Termination of the DTT between Denmark and Russia

Denmark has terminated the agreement in connection with announcement no. 28 of 9 August, 2022, regarding the agreement of 8 February, 1996, with Russia. This agreement aimed at preventing double taxation and prevention of fiscal evasion concerning income and wealth taxes. The termination was decided on 19 June, 2023, and it is based on Article 29 of the mentioned agreement. 

For Denmark, this termination will have effect on withholding taxes related to income received on or after 1 January, 2024, and on other taxes regarding income and wealth taxes imposed on or after 1 January, 2024.

Law on an additional law for certain group entities (Minimum Taxation Act)

On 7 December, 2023, the Danish Parliament enacted legislation, specifically the Minimum Taxation Act, incorporating Pillar Two into Danish Law.

The law implements the EU directive of 15 December, 2022 and the OECD Global Anti-Base Erosion Model Rules ensuring a global effective minimum taxation of 15 percent. The rules apply to group entities that are part of a multinational group or a large national group, where the group has had an annual turnover of at least EUR 750 million (approx. DKK 5.6 billion) in two of the last four financial years before the current year.

The Minimum Taxation Act comes into effect on 31 December, 2023.  The Danish Income Inclusion Rule and Domestic Top-Up Tax rule will apply for fiscal years commencing on or after 31 December, 2023. The Danish Undertaxes Payments Rule will generally apply for fiscal years commencing on or after 31 December 2024. For fiscal years commencing on or before 31 December, 2026, and ending no later than 30 June, 2028, any top-up tax in a jurisdiction will be set at zero if the multinational group’s or large national group’s meets one of the transitional CbCR Safe Harbour tests.