Denmark

Tax-free restructuring

Restructuring (e.g. mergers, demergers, share exchanges, drop-down of assets) can, in many cases, be carried out tax-free under the provisions of the EU Mergers Directive as implemented into Danish law. These types of restructuring can be carried out in a tax-exempt manner without prior approval from the tax authorities. However, several objective conditions must be fulfilled. Formation, merger, reorganisation, and liquidation expenses are non-deductible if related to external assistance. However, if any costs related to the restructuring are incurred as employee wages within the group, the cost of the wages can be deducted.

Cross-border mergers

Companies domiciled abroad are subject to Section 15 of the Danish Merger Tax Act. Thus, a cross-border merger requires, that:

• the transferring non-liquidation company is dissolved by transferring the company's assets and liabilities as a whole to another company, or
• two or more companies are merged into a new company.

In order to address cases where mergers retroactively exclude income earned in Denmark from taxation, a new provision was implemented in the Danish law concerning mergers in June 2018. This provision prevents cross-border mergers, in which a foreign company is the recipient company and where income that is earned in the Danish company before the merger took place, is exempted from Danish taxation. The merger date for the Danish company that participates in a tax-exempt cross-border merger with a foreign company shall be the date on which the merger is adopted in all the merging companies. Therefore, the merger date cannot be prior to the date of the actual merger of all the merging companies. The new rule has retroactive effect for cross-border mergers adopted by one or more of the participating companies on 23 March 2018 or later.

Danish Intergovernmental Agreement (IGA) with the United States (US)

Denmark has entered into an Intergovernmental Agreement (IGA Model 1) with the United States on the Danish implementation of the Foreign Account Tax Compliance Act (FATCA). The IGA is implemented into Danish law and is, to a large extent, an overlay to existing Danish tax reporting rules applying to Danish banks. The scope of FATCA is, however, wider than the existing rules in terms of both entities and products covered and customer due diligence procedures. The IGA implies that Danish foreign financial institutions (FFIs) must report to the Danish tax authorities instead of directly to the US Internal Revenue Service (IRS). The Denmark-US IGA contains important exceptions for both the Danish mutual fund and pension savings industries.

Common Reporting Standard (CRS)

Denmark is among the ‘early adopters’ of the CRS, whereby the first exchange of information took place in 2017.

The Council Directive 2014/107/EU, amending Directive 2011/16/EU as regards mandatory automatic exchange of information in the field of taxation, has been fully implemented in Denmark and is effective from 1 January, 2016.

Reporting under FATCA/CRS

The reporting financial institutions must submit the required information under FATCA/CRS through the online system solution of the Danish tax authorities. The reporting deadline is 1 May, and is the same under both regimes.

DAC6

The EU Council Directive 2011/16 in relation to cross-border tax arrangements, known as DAC6, has been in force since 25 June, 2018. DAC6 aims at transparency and fairness in taxation.

DAC6 applies to cross-border tax arrangements, which meet one or more specified characteristics (hallmarks), and which concern either more than one EU country or an EU country and a non-EU country. It mandates a reporting obligation for these tax arrangements if in scope no matter whether the arrangement is justified according to national law. 

The reporting obligation is required of both the relevant taxpayer(s) and its advisors. 

Failure to comply with DAC6 could mean facing significant sanctions under local law in EU countries and reputational risks for businesses, individuals and intermediaries.

Denmark has implemented DAC6 as part of Danish law by Act. No. 1573 of 27 December, 2019.