• Professional News
  • 07 May 2012

Danish Bill Targets "No-Tax Corporations"

On 25 April 2012, a bill targeting so-called "no-tax corporations" was presented to the Danish Parliament. The bill contains various amendments to the current tax regime, such as (i) the introduction of restrictions in the right to utilise losses being carried forward, (ii) the reintroduction of joint and several liability for group companies' payment of Danish taxes and (iii) the introduction of publication of corporate tax matters.

Restrictions in the right to utilise previous losses
The current Danish tax regime allows for the unlimited and indefinite carrying forward of losses. The bill proposes restrictions in the right to utilise losses being carried forward based on the German model for carrying forward losses. The restrictions will apply to income years beginning on 1 July 2012, but will have effect on losses being carried forward from previous years.

According to the bill, losses may only be used to set off against income up to DKK 7.5 million (approx. EUR 1 million). Income exceeding DKK 7.5 million (approx. EUR 1 million) cannot be set off by more than 60 percent by losses being carried forward.

Even if no time limit is set on the right to carry forward losses, the restriction will imply that taxes will be levied on all companies having a certain level of income, regardless of the value of the losses being carried forward.

Joint and several liability for tax payments
The bill furthermore reintroduces joint and several liability for tax payments by companies being part of a consolidated tax group. The previous rules were abolished upon the introduction of mandatory joint taxation between Danish group-related entities in 2005.

The proposal implies that companies will be held jointly and severally liable for corporate income taxes as well as withholding taxes on dividends, interest and royalty payable by all members of a consolidated tax group.

Certain restrictions in the liability have been proposed with regard to companies partially owned by minority shareholders outside the tax consolidation group. Such companies will only be subject to secondary liability. Furthermore, the liability will be proportional to the percentage of shares owned by members of the consolidated tax group. These restrictions are meant to ensure that minority shareholders will not be held liable for the shortcomings of majority shareholders.

Publication of corporate tax matters
Finally, the bill introduces publication of so far private information on corporate tax matters. In the future, information concerning (i) the taxable income, (ii) the value of losses being carried forward and (iii) the amount payable in taxes will be made public by the Danish tax authorities. If the company forms part of a consolidated tax group, information concerning all members of the group will be made public.

Impact of the bill
The bill must be seen as part of the ongoing efforts aimed at multinationals conducting business in Denmark without generating taxable income of any significance. Generally, the bill introduces further tax restrictions on corporations.

The introduction of joint and several liability among members of consolidated tax groups and the publication of corporate tax matters may have adverse consequences for corporations present in Denmark.

The introduction of restrictions in the right to carry forward losses is applicable at group level. Accordingly, it should be considered in the future whether a consolidated tax group should be established when it is not mandatory.

Furthermore, minority shareholders of Danish companies being part of consolidated tax groups should consider how to handle the financial and reputational risks arising when the companies are made part of a majority shareholders' consolidated tax group.

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