Amcham yearbook 2007-Tom5 - American Chamber of Commerce ...

Corporate taxation
Tax rate
Companies become liable to pay tax as soon
as they have been established in Denmark.
The tax rate for Danish companies and
Danish branch offices or permanent establishments
is 28%.
Company residence and territoriality
Unlimited tax liability
A resident company is a company that is
incorporated and has its statutory seat in
Denmark.
Furthermore, a company incorporated in a
foreign country maybe considered a tax resident
of Denmark if it is managed and controlled
in Denmark. A company resident in
Denmark is taxed on its worldwide income
and chargeable capital gains. However,
income from foreign permanent establishments
and real property situated abroad is
not included in the computation of the taxable
income in Denmark.
Limited tax liability
The income resulting from foreign companies’
permanent establishments/real property
located in Denmark must be included in the
Danish income statement, whereas the
expenses related to the activities of the permanent
establishment/real property in
Denmark are deductible.
Danish income subject
to withholding tax
A tax treaty between Denmark and a country
of residence of the recipient of certain types
of income may provide that Denmark reduce
or eliminate the withholding tax on such payments.
Dividends
Denmark is as a rule entitled to impose a 28%
withholding for on dividends paid to foreign
recipients. However, dividends from a Danish
company to a foreign company are exempt
from withholding tax if the following requirements
are satisfied;
a) The foreign parent company is resident in
another EU member state or if the parent
company is protected according to a double
tax treaty and,
b) the recipient owns at least 15% (2007) of
the share capital of the payer for a period
of 12 consecutive months
The 12-month holding period requirement
may be satisfied after the dividends are distributed.
Royalties
Denmark is entitled to impose 30% withholding
tax royalties to foreign companies.
However, this rate is subject to treaty relief (it
may be reduced or eliminated depending on
the specific treaty).
Interest
Interest payments to foreign group companies
can be subject to a withholding tax of
30%. If certain conditions are fulfilled withholding
tax exemptions apply.
Tax losses
Tax losses may be carried forward indefinitely
and can be offset against future
taxable/operating income. Tax losses cannot
be carried back.
Danish tax law includes an anti-avoidance
provision, which may restrict the utilization
of tax losses carried forward in case of a
change of ownership of a company.
To the extent that more than 50% of the
shares/votes in a Danish company directly or
indirectly is held by another shareholder than
compared to a prior year in which the company
has suffered a tax loss, the deductibility
of such tax loss is restricted, implying that
any tax loss carry forward cannot be offset
against future net financial income (i.e. interest,
capital gains on bonds and shares, dividends,
income from financial leasing of
depreciable assets etc.). It may, however, still
be offset against future operating income.
In case the Danish company is without material
business activity at the time of a change
in ownership, cf. above, tax loss carry forwards
will be lost entirely.
Under this anti-avoidance provision a transparency
principle applies in case a parent
company owns more than 25% of the shares
in the Danish company that has suffered the
tax loss. In such case, the shareholders in the
parent company are deemed the shareholders
in the loss-making company when performing
the change of ownership test. As a
main rule the transparency rule does not
apply to listed companies.
Controlled Foreign Companies (CFC)
Under the controlled foreign company (CFC)
legislation, a Danish company, together with
other group companies, holding at least 25%
of the share capital or more than 50% of the
voting power of a foreign company must
include in its taxable income financial
income of that controlled subsidiary if the
subsidiary is primarily engaged in financial
activities and is subject to low taxation. The
Danish CFC registration is expected to be
amended during 2007.
Filing of tax return
As a general rule, the income year runs with
the financial year and the tax return must be
filed not later than 6 months after the end of
the income year. This means that companies
with a 31 December year-end must file their
tax returns by end of June in the following
year.
Payment and collection
The corporate tax charge must be paid on
account in two instalments. The dates of payment
are in March and in November. The tax
paid on account is compulsory for all companies
established after 28 January 1998. The
advance tax is 50% of the average income
tax for the past three years.
As new companies cannot make up advance
tax on the basis of past years income, no
ordinary advance tax payment is fixed. A
new company may elect a voluntary payment
of advance tax before 20 November in
the relevant income year.
Tax audits
The Danish authorities perform tax audits on
a number of companies and branches every
year. The tax audits are not done on regular
basis but are instead based on a random
sampling.
Penalties
An interest rate of 0,5% per month will be
charged on late payments of corporate tax.
Such interest charges are not tax deductible.
Calculation of the taxable income
Taxable income is based on profits reported
in the annual accounts adjusted to comply
with prevailing tax rules. For tax purposes,
several adjustments are made, primarily concerning
non-taxable income, non-deductible
expenses, depreciation and provisions made.
Expenses incurred to acquire, ensure and
maintain income are deductible on an accrual
basis.
Dividend income
A dividend received by a Danish parent company
from its Danish or foreign subsidiary is
exempt from tax provided that the parent
company owns 15% (2007) or more of the
share capital of the subsidiary for an uninterrupted
period of 12 months that includes the
date of distribution of the dividends.
If a Danish company holds less than 15%
(2007) of the shares, then 66% of the dividend
amount is taxable at the corporate tax
rate of 28% (i.e. an effective taxation of the
dividend at 18,52%).
Capital gains and losses
Capital gains and losses are generally included
in the taxable income. Taxable net gains
are included in the taxable income of the
company for each financial period and are
taxed at a rate of 28%.
In addition to the assets that are described
below, a complex set of rules regarding e.g.
taxation of gains and losses on bonds, forward
contracts, futures and options etc.
exists. However, these rules are not described
here.
Sale of Shares
Gains
If shares have been owned for less then three
years, the gains are taxed at a rate of 28%.
Gains derived from shares owned for three
years or more are generally exempt from tax
unless the seller deals in shares. Special rules
apply to investment companies.
Losses
If shares have been owned for less than three
years, losses are not deductible, yet losses
can be offset against gains from the sale of
shares which have also been owned for less
than three years. Losses incurred on shares in
qualifying shareholdings are reduced by the
amount of tax-free dividends received on the
shares.
Net losses can be carried forward indefinitely.
However, losses incurred prior to 2002 can
only be carried forward for five years.
Losses from the sale of shares owned for
three years or more are not deductible for tax
purposes, unless the primary object of the
seller is to trade shares.
Real Property
Gains
Capital gains from sale of real property are
tax-liable. In determining a gain, a four-step
procedure must be followed:
• The purchase price and the sale price of
the real property are adjusted to cash values.
• The total amount of tax depreciation and
write-offs during the ownership period is
calculated.
• Tax depreciation is recaptured as the lower
of (a) sales price less written-off value and
(b) accumulated depreciation.
• Depreciation, losses or write-offs, which
have not been recaptured, reduce the purchase
price when calculating the taxable
gain on the property.
A capital gain is taxed as ordinary income.
However, roll-over relief is available if a new
property is acquired for the use of the business
prior to the end of the year following
the year of disposal.
Losses
A loss from sale of real property is only taxdeductible
if the primary object of the company
is to trade real property. Yet, a loss can
be carried forward to be offset against taxable
gains on real property.
Christiansborg
54 55
Hans Henrik Tholstrup