Danish corporate taxpayers are taxed on an annual basis. Corporate taxpayers may choose a tax year that is different from the calendar year.
Tax returns are completed on the basis of financial accounts with adjustments for tax. Tax returns should be filed no later than six months following the end of the accounting year. Corporations with an accounting year-end that falls in the period from 1 March to 31 March must file a tax return no later than 1 September in the same calendar year.
Tax returns must be filed digitally. Companies can file the tax return themselves or grant their auditor/tax advisors access to file the tax return on their behalf.
The tax system, in practice, is based on self-assessment. Tax assessments are made automatically by the tax authorities on the basis of the tax return. However, the tax authorities may subsequently audit the tax return.
Payment of tax
CIT must be paid on a current-year basis in two equal instalments due on 20 March and 20 November. The authorities request payments of 50% of the average of the last three years’ final income tax. In addition, voluntary additional payments may be made on the same dates. An allowance is granted in case of voluntary payment on 20 March, and voluntary payments on 20 November are subject to interest when set against the final tax bill. The allowance granted for voluntary payments on 20 March 2022 was 0.4%, and the interest for payments on 20 November 2022 was 0.4%.
The actual interest rates for the tax year 2021 were published in December 2021.
Companies may make a voluntary additional payment no later than 1 February following the assessment year (i.e. no later than 1 February 2024 for the tax year 2023). Such voluntary payment will be subject to an additional interest charge based on the interest rate of the underpaid tax for the period 20 November 2022 to 1 February 2022. This interest was 0.9% for the tax year 2022.
The final tax bill is settled by 20 November in the following year. Underpaid tax is then payable by 20 November with a surtax of 4.4% of the tax amount (for tax year 2022). Overpaid tax is refunded by November of the following year with interest of 0.4% (for tax year 2022).
Tax audit process
The Danish tax system is based on self-assessment. Companies are, in general, subject to audit on a random basis, but some large companies/groups are subject to annual audit by the Danish tax authorities.
Statute of limitations
The general statute of limitations is 1 May in the fourth calendar year after that of the end of the relevant accounting period. This limitation is extended for another two years with respect to inter-company (transfer pricing) issues and certain tax-exempt restructurings.
Topics of focus for tax authorities
Once a year, the Danish tax authorities publish a list of topics subject to increased focus by the tax administration during their audit. Transfer pricing issues are on top of this list.
In general, all aspects of transfer pricing are in focus. However, specific topics certainly seem to have caught the tax authorities’ attention. These are mainly transactions with group companies resident in countries with which Denmark does not have a tax convention, use and transfer of intangible assets, restructurings, and companies making continuous losses. Also, the frequency of transfer pricing documentation penalties has risen. Those penalties are given if the documentation is deemed inadequate, non-contemporaneous, or the deadline of sending in the documentation upon request is not met.
Attention has also been drawn to whether Danish entities have complied with the WHT requirements regarding dividends and interest.
Furthermore, due to the increased deduction of 130% of R&D costs for 2020 to 2022, attention has been drawn to the R&D cost base for tax purposes and whether the costs included should be considered as R&D costs.
Last but not least, the tax authorities have increased their focus on tax deductions for costs related to the creation of tax-exempt income, such as dividends from and capital gains on certain shares.