Corporate Tax 2010 - BMR Advisors

Accura Advokataktieselskab
Denmark
3.5 If so, is there a “safe harbour” by reference to which tax
relief is assured
The 4:1 ratio in connection with thin capitalisation is a safe harbour,
i.e. interest above the 4:1 ratio can be deducted if it can be
substantiated that a similar loan could have been obtained (on
market terms) from an independent third party without any security
from a related party. Furthermore, the thin capitalisation rules only
apply if the controlled debt exceeds DKK 10 million at year-end.
3.6 Would any such “thin capitalisation” rules extend to debt
advanced by a third party but guaranteed by a parent
company
Yes. Third party debt will be deemed to be related-party debt if
such debt is guaranteed by a party related to the Danish borrowing
company.
(3) prepare and keep on file written documentation to justify
whether the prices in terms of their intergroup transactions
are on an arm’s length basis.
Danish transfer pricing legislation does not specify any methods for
determination of arm’s length prices. This means that the method
described in the OECD transfer pricing guidelines should be
followed. OECD has given priority to the traditional transaction
based methods. Accordingly, the Danish guidelines also recognise
the following transfer pricing methods listed in order of priority:
comparable uncontrolled price methods;
resale price method;
cost plus method;
profit split method; and
transactional net margin methods.
4 Tax on Business Operations: General
Denmark
3.7 Are there any restrictions on tax relief for interest
payments by a local company to a non-resident in addition
to any thin capitalisation rules mentioned in questions
3.4-3.6 above
4.1 What is the headline rate of tax on corporate profits
The corporate tax rate is 25%.
In addition to the thin capitalisation rules the following two tests
have to be made to determine the actual level of deductibility of
interest payments:
1. “interest ceiling” test; and
2. the “EBIT model” test.
These tests only apply if net financing costs exceed DKK 21.3
million in 2009 (adjusted annually, i.e. currently approximately
EUR 3 million) per fiscal year. In the case of two (or more)
affiliated Danish companies, the amount of DKK 21.3 million
applies to the aggregate net financing costs of the affiliated
companies (i.e. the tests apply if the companies’ aggregate net
financing costs exceed DKK 21.3 million).
If the net financing costs exceed DKK 21.3 million per year, there
will be an interest cap limiting the tax deductibility of any net
financing cost exceeding the taxable value of the qualifying
company’s (or jointly taxed companies’) assets at year-end
multiplied by a standard interest rate (in 2009, 6.5%). The part of
the net financing costs that are in excess of the interest cap are lost
and cannot be carried forward.
The EBIT rule applies alongside the above interest cap rule. Even if
the interest ceiling test (6.5% test) is met, net financing costs can
only reduce taxable income with 80% of taxable EBIT (earnings
before interest and taxes). Any excess net financing cost can be
carried forward to reduce taxable EBIT in subsequent years.
Please note that only net financing costs exceeding DKK 21.3
million (2009) will be capped.
4.2 When is that tax generally payable
The tax is payable on account in two equal instalments no later than
20 March and 20 November in the income year.
A Danish company must file an income tax return annually. A tax
assessment is issued after the tax return has been filed. The tax
assessment shows the assessed taxable income and the tax payable.
If the final tax liability exceeds the tax payments made, a surcharge
of 6.1% (2009) of the outstanding tax liability will be payable.
4.3 What is the tax base for that tax (profits pursuant to
commercial accounts subject to adjustments; other tax
base)
In Denmark, the tax base follows the commercial account subject to
adjustments.
4.4 If it otherwise differs from the profit shown in commercial
accounts, what are the main other differences
Normally, depreciation for tax purposes differs from depreciation
for accounting purposes. In general, the depreciation for tax
purposes exceeds the depreciation permitted in connection with
commercial accounts. Depreciation for accounting purposes must
use the real value of the assets which does not apply to depreciation
for tax purposes.
3.8 Does Denmark have transfer pricing rules
Yes. Danish transfer pricing legislation follows the OECD transfer
pricing guidelines, and the rules apply to Danish companies with
both cross-border related party transactions and national
transactions.
In summary, the transfer pricing legislation implies that Danish tax
payers subject to the rules must:
(1) apply the arm’s-length principle when determining
intergroup prices;
(2) provide information on the nature and the extent of
intergroup transactions in their tax return; and
ICLG TO: CORPORATE TAX 2010
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4.5 Are there any tax grouping rules Do these allow for relief
in Denmark for losses of overseas subsidiaries
Mandatory Danish joint taxation
Denmark has mandatory joint taxation for affiliated companies
(controlling interest) which are domiciled in Denmark.
Under Danish law, any permanent place of operation or real estate
located in Denmark, which is owned by a company not taxable in
Denmark, is jointly taxed with all its affiliated companies in
Denmark.
Optional international joint taxation
International joint taxation is not mandatory but can be elected. If
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