Denmark

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

With the adoption of new legislation amending Section 5 H of the Danish Tax Assessment Act, Antigua and Barbuda, Belize, and Seychelles have been added to the blacklist of non-cooperative tax jurisdictions, while Costa Rica, the British Virgin Islands, and the Marshall Islands have been removed. This law was adopted to align Section 5 H, which identifies countries subject to Danish defensive measures (tax sanctions), with the EU’s list of non-cooperative tax jurisdictions (the EU’s haven blacklist).

The law entered into effect on 1 February 2024. However, this alignment does not reflect the subsequent update following the Council's decision on 20 February 2024, where the Bahamas, Belize, Seychelles, and Turks and Caicos Islands were removed from the EU list of non-cooperative jurisdictions for tax purposes.

To address this discrepancy, an additional amendment to Section 5 H of the Danish Tax Assessment Act was adopted on 4 June 2024. This new legislation removes the Bahamas, Belize, Seychelles, and Turks and Caicos Islands from the blacklist of non-cooperative tax jurisdictions. The updated law entered into effect on 1 July 2024.

The rule on defensive measures in Section 5 H of the Danish Tax Assessment Act includes the following blacklist countries and territories as of 1 July 2024:

• American Samoa
• Anguilla
• Antigua and Barbuda
• Fiji
• Guam
• Palau
• Panama
• Russia
• Samoa
• Trinidad and Tobago 
• 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 1 July 2023, while the entire law takes effect from 1 January 2024.

New double tax treaty (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. Consequently, the treaty became effective on 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 has an effect on withholding taxes (WHTs) 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.

Implementation of Pillar Two (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 Organisation for Economic Co-operation and Development (OECD) Global Anti-Base Erosion Model Rules ensuring a global effective minimum taxation of 15%. 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 750 million euros (EUR) (approximately 5.6 billion Danish kroner [DKK]) 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 or large national group meets one of the transitional Country-by-Country (CbC) Reporting safe harbour tests.

On 4 June 2024, a new law amending the Minimum Taxation Act was adopted introducing safeguard measures to prevent groups from entering into hybrid arrangements aimed at exploiting the CbC Reporting transitional safe harbour rules in the Minimum Taxation Act, which allows setting the top-up tax for a jurisdiction to zero if a safe harbour is met. The amendment law generally sought to implement the OECD Administrative Guidance from December 2023 and to ensure alignment of the Danish law with the international standard, including the introduction of simplified calculation rules for non-material entities (permanent safe harbour). The provisions amending the Minimum Taxation Act are given retroactive effect from 1 January 2024.

Expansion of the reporting obligations related to royalty payments to foreign parties

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

Previously, companies that had been granted an upfront exemption from WHTs on royalty payments to foreign parties were not required to report such payments, provided there was no obligation to withhold royalty tax. The new law requires companies to report all payments and accruals of royalty to the Danish tax authorities, regardless of whether there is an obligation to withhold taxes on the royalty. However, the reporting obligation does not apply to payments and accruals of royalty to a Danish PE of a foreign party. Additionally, the reporting obligation does not apply if the royalty is exempt under the EU Interest/Royalty Directive, i.e. if the royalty transaction is between associated companies (as defined in the Directive).

The Danish government's initiative for 'A Stronger Business Sector' and entrepreneurship initiative

On 12 June 2024, the Danish government presented the main points of its entrepreneurship initiative. The initiative includes the following measures: 

• Better access to capital and reduced taxation.
• Fewer burdens for entrepreneurs and less hassle.
• More talents to come forward.
• More knowledge-based entrepreneurs.
• More entrepreneurs throughout Denmark.

In the coming period, it is expected that the Danish government and other parties in the Danish Parliament will negotiate the contents of the final entrepreneurship reform, including the effective dates. 

On 20 June 2024, the Danish government presented a new initiative under the name ’A Stronger Business Sector‘, aimed at strengthening the business sector and improving the framework conditions that make it possible to create growth and maintain jobs in Denmark. The initiative includes the following measures: 

• Reduction of the gift and inheritance tax rate from 15% to 10% for the generational transfer of an operating business to close family members.
• Legal right to the valuation of businesses during generational transfers according to a schematic model for calculating gift/inheritance tax.
• Family-owned businesses operating through rental of real estate will, unlike the current rules, be considered an operating business that can be transferred with tax succession.
• 120% permanent deduction for research and development (R&D) costs.
• Abolition of the option for immediate depreciation of expenses for computer software.
• Abolition of the option for immediate depreciation of expenses for acquiring know-how and patent rights.
• Reduction of the state grant to the Danish Business Promotion Board.

At this time, it has not been disclosed when an actual bill can be expected to be introduced in the Danish Parliament.