Depreciation, amortisation, and depletion
Tax depreciation need not be in conformity with book depreciation.
Annual depreciation allowances on machinery and equipment may be claimed under the diminishing-balance method at up to 25%. The depreciation base is the cost of fixed assets less sales proceeds from disposals and depreciation allowances previously claimed.
New machinery and equipment acquired between 30 May 2012 and 31 December 2013 could be included in the base with a supplement of 15%. Hence, 115% of costs of new fixed assets was added to the base and depreciated at up to 25% per year. If a company has applied this principle, the assets in question must be kept on a separate account until the end of the tax year 2017.
For ships, the depreciation rate is 20% in the year of construction and a 12% declining-balance basis in subsequent years.
Depreciation allowances on buildings (other than residential buildings and office buildings, etc. not adjoining a depreciable building) may be claimed at up to 4% per annum on a straight-line basis.
Airplanes, trains, and utility plants can be depreciated only at 15% per annum on a declining balance basis.
Rails, telecommunications facilities, and certain other long-life plant and equipment can be depreciated only at 7% per annum on a declining balance basis.
Depreciation allowances that are recaptured as part of a capital gain on the sale of an asset generally are fully taxable.
Acquired goodwill and other intangible property rights can be amortised at up to one-seventh per year on a straight-line basis. Costs related to the purchase of patents or know-how (including rights/licences to utilise patents or know-how) can either be fully expensed in the year of acquisition or amortised over a seven-year period on a straight-line basis.
Certain restrictions regarding the depreciable value of goodwill apply in the case of group transactions. Goodwill on the purchase of shares cannot be amortised for tax purposes.
Depletion of the cost of acquisition or exploitation of natural resources is subject to special rules.
No specific rules in Danish tax law govern the treatment of start-up expenses. Instead, these expenses are treated according to general tax law.
Companies may, under certain conditions, benefit from a scheme allowing for a cash payment equal to the tax value (22%) of negative taxable income, provided the negative income is created from research and development (R&D) costs (see the Tax credits and incentives section).
See Thin capitalisation and interest relief limitations in the Group taxation section.
Companies may deduct loss on bad debt, which is not inter-company debt.
The main rule for calculation and taxation of companies’ gains and losses on receivables for tax purposes will be the mark-to-market principle (i.e. taxation based on the difference in value at the beginning and end of the assessment year). Use of the mark-to-market principle means that recognition of losses on these types of receivables for tax purposes is not conditional on a final loss having been ascertained.
Special rules apply to gains and losses on trade and inter-company receivables, as these, as a main rule, should be calculated according to realisation principles. Companies may, however, opt for the mark-to-market principle for each category of receivables.
Companies may deduct a small amount in gifts to certain organisations approved by the Danish tax authorities and mentioned in the Danish tax authorities' guidelines. The deduction cannot exceed DKK 17,000 per year for tax year 2021.
Furthermore, companies may deduct gifts to cultural organisations that receive a maintenance grant for operating expenses from either the government or the municipality. According to these rules, there is no limitation in terms of value, but certain restrictions regarding the use of the gift are applicable.
Finally, gifts to certain charitable organisations within Denmark or the European Union may be deducted, provided the recipient uses the funds for research. Deductibility is conditioned upon the organisation being approved by the Danish tax authorities. No limitation as regards the amount is applicable.
Deduction for R&D expenses
See Capital expenditure incentives in the Tax credits and incentives section
Fines and penalties
Fines and penalties are, in general, not deductible, as these are not considered operational expenses.
Bribes, kickbacks, and illegal payments
Even if considered economically reasoned and custom in certain jurisdictions, amounts used for bribery of officials are not deductible.
Taxes are non-deductible for CIT purposes, except for employer’s tax, non-recoverable VAT, land tax, and coverage charge (see the Other taxes section).
Net operating losses
Tax losses may be carried forward indefinitely. However, the utilisation of tax losses carried forward may be restricted. According to the rules, taxable income up to 8,767,500 for 2021 (8,572,500 for 2020) can always be eliminated by tax losses carried forward, whereas taxable income exceeding DKK 8,767,500 can only be reduced by 60% as a result of tax losses carried forward. For Danish tax consolidation groups, the rules apply for the group collectively. If losses are restricted, the limitation must be allocated to each of the companies according to complex rules.
Certain restrictions on the right to carry tax losses forward apply when more than 50% of the share capital or 50% of the voting rights at the end of the financial year are owned by shareholders different from those that held control at the beginning of the income year in which the tax loss was incurred. Certain exceptions apply regarding intra-group transfers.
Similarly, under certain circumstances, tax losses may be cancelled if a Danish company receives a debt forgiveness or comparable transaction. However, there are numerous exceptions (e.g. inter-company transactions).
Tax losses may not be carried back for utilisation in previous income years.
Payments to foreign affiliates
A Danish corporation can claim a deduction for royalties, management fees, and similar payments made to foreign affiliates, provided that such amounts are made on an arm’s-length basis and reflect services received. Interest at normal commercial rates paid to foreign affiliates will generally be allowed as a deduction but is subject to very complex thin capitalisation and interest relief limitation rules (see Thin capitalisation and interest relief limitations in the Group taxation section).
No deduction for payments to related recipients in countries or territories on the EU blacklist of tax havens
A payment can neither be deducted nor otherwise included in the calculation of taxable income of a Danish taxpayer, or in any other way allow the payment to affect the income statement, when the recipient of the payment is tax resident or registered in one of the countries or territories that are currently included in the EU blacklist of tax havens and the payee in question is also related to the taxpayer.
The blacklist includes the following countries and territories:
- American Samoa
- Trinidad and Tobago (the current DTT between Denmark and Trinidad and Tobago is scheduled to be terminated as of 1 January 2022)
- US Virgin Islands
The measures came into effect 1 July 2021.
As a result of the DTT between Denmark and Trinidad and Tobago, the defensive measures only apply against this country once the DTT in question has been revoked. The DTT is scheduled to be revoked as of 1 January 2022.
The payments covered are any consideration granted in connection with the acquisition of ownership or use of rights to an asset, benefit, or right, including consideration for loans or credits. The rule thus covers any form of consideration granted as a purchase price on the acquisition of assets, regardless of the nature of the asset. Likewise, any remuneration in the form of rent payments, leasing fees, and royalties granted as consideration for the right to dispose of real estate or movable or intangible assets. Also, remuneration for loans and credits are covered by the rule (e.g. interest) as well as remuneration in the form of one-off payments or an obligation to repay a larger amount than the amount lent.
The rule applies in all cases where:
- a payment is made within group relationships and between companies and shareholders with a controlling influence, as well as payments between related physical persons
- the affiliated recipient of the payment is either tax resident or registered under the rules of one of the covered countries (cf. the above list), and
- the affiliated recipient of the payment is either an independent tax subject or a transparent entity, or
- if the affiliated recipient of the payment is resident in a country that has concluded a DTT with Denmark if the recipient is not the beneficial owner of the payment and the payment is passed on to an associated party in one of the covered countries.
The rule will not apply as regards payments for which it is proven that the beneficial owner of the payment is a tax resident in a country that is a member of the European Union or European Economic Area, or which has entered into a DTT with Denmark.