Denmark

Repeal of immediate depreciation on IT software, knowhow and patent rights etc., and increase in deductions on expenses related to R&D activities

The bill is a partial implementation of the entrepreneurship initiative presented by the Danish Government on 12 June, 2024. The bill includes the following measures:

• Repeal of the possibility to claim full deduction on acquisition of IT software. Henceforth, IT software must be depreciated similarly to other depreciable assets using a diminishing balance method.
• Repeal of the possibility to claim full deduction on expenses related to the acquisition of know-how and patent rights, as well as expenses related to the acquisition of license and usage rights thereto.
• Increased deductions on expenses related to R&D activities. Starting from the calendar year 2028, the deduction for expenses related to R&D activities will amount to 120% of the acquisition cost or the incurred expense, with a gradual implementation of a 114% deduction rate in 2026 and a 116% deduction rate in 2027.

The bill was adopted on 28 November 2024 and came into effect on 1 January 2025.

Implementation of the OECD's administrative guidelines on minimum taxation rules and amendment of the list of countries subject to defensive mesures

The bill to adopt the latest OECD guidelines on GloBE rules into the Danish implementation of Pillar II (the Minimum Taxation Act) was adopted on 7 December, 2023. The bill includes the following measures.

• Protective measures designed to prevent MNEs from entering into avoidance arrangements aimed at exploiting the special transitional rule in Section 72 of the Minimum Taxation Act. This rule allows groups to set the additional tax to zero in a jurisdiction during a transitional period based on simplified calculations derived from the groups' country-by-country reports.
• Rules on the extent to which MNEs, in applying the special transition rule in Section 72 of the Minimum Taxation Act, can rely on country-by-country reports prepared based on financial statements that account for adjustments resulting from purchase price allocation.
• Simplified calculation rules for the application of the permanent “safe harbour” exemption provision.
• Minor changes and adjustments to the Minimum Taxation Act, primarily aimed at implementing requirements for the national implementation provisions outlined in OECD's administrative guidelines from July 2023 and December 2023. These adjustments are made to ensure that Danish provisions  regarding top-up tax under the IIR, top-up tax under the UTPR, and top-up tax under the domestic top-up tax rule can be regarded as qualified rules.
• Furthermore, the bill aims to ensure that the Danish domestic top-up tax can be considered an acknowledged as qualified domestic top-up tax, such that it can be covered by a safe harbour provision equivalent to that outlined in Section 34, Subsection 3 of the Minimum Taxation Act. This ensures that other countries do not impose top-up tax on Danish entities.

The bill is effective with respect to financial years commencing on 31 December 2023 or thereafter.

Proposed repeal of taxation on dividends originating from unlisted portfolio shares (<10 pct. ownership) 

On 2 October 2024 the Danish government presented a proposed bill aiming to partially implement the so-called Entrepreneurship Initiative presented by the Danish Government on 12 June, 2024.

The bill includes a proposed repeal of taxation on dividends from portfolio shares, meaning unlisted shares which constitute an ownership of less than 10 percent. Currently, a tax of 22% is levied 70 percent of the net amount of dividends from unlisted portfolio shares.

The tax exemptions will include both Danish and foreign investors. Foreign investors will in principle be tax liable with respect to these dividends, however, the tax rate will be 0 percent.

Furthermore, the tax exemption is conditional upon the recipient being the beneficial owner of the dividend.

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 liabilitywhen 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.

Extension of the reporting obligation for foreign royalty payments

On 4 April, 2024, the Danish Parliament enacted legislation, introducing a requirement for reporting on foreign royalty payments regardless of whether there is an obligation to withhold taxes. The legislation became effective on 1 July, 2024. 

Previously, companies granted an upfront exemption from withholding taxes on foreign royalty payments were not required to report such payments, provided there was no obligation to withhold royalty tax. The enactment of the new law requires companies to report all royalty payments and credits to the Danish Tax Authorities, regardless of whether there is an obligation to withhold taxes on the royalty payments. However, the reporting obligation does not apply if the royalty payments or credits are exempt under the EU Interest/Royalty Directive.