Denmark

Repeal of immediate depreciation on IT software, know-how, and patent rights, etc. and increase in deductions on expenses related to research and development (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 Organisation for Economic Co-operation and Development’s (OECD's) administrative guidelines on minimum taxation rules and amendment of the list of countries subject to defensive measures

The bill to adopt the latest OECD guidelines on Global Anti-Base Erosion (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 multinational enterprises (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 (CbC) 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 CbC 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 the 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 Income Inclusion Rule (IIR), top-up tax under the Undertaxed Profits Rule (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 and acknowledged as a 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 (less than 10% 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 that constitute an ownership of less than 10%. Currently, a tax of 22% is levied on 70% 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%.

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 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.

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 (WHTs) 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 European Union (EU) Interest/Royalty Directive.