All telephone calls to the persons in Denmark listed below should be made to the persons’ mobile telephone numbers. These persons no longer have office telephone numbers. Telephone calls to the office switchboard will be put through to the respective persons’ mobile telephone numbers.
Copenhagen GMT +1
EY +45 73-23-30-00
Dirch Passers Allé 36 Fax: +45 72-29-30-30 DK-2000 Frederiksberg Email: copenhagen@dk.ey.com Copenhagen Denmark
Head of Tax, Denmark
Jan Huusmann
Mobile: +45 51-38-48-53 Email: jan.huusmann@dk.ey.com
International Tax and Transaction Services – Transaction Tax Advisory
Carina Marie G. Korsgaard
Mobile: +45 25-29-37-64 Email: carina.m.g.korsgaard@dk.ey.com
Jens Wittendorff Mobile: +45 51-58-28-20 Email: jens.wittendorff@dk.ey.com
International Tax and Transaction Services – Transfer Pricing
Justin Breau
Henrik Arhnung
Mobile: +45 25-29-39-32 Email: justin.breau@dk.ey.com
Mobile: +45 51-58-26-49 Email: henrik.arhnung@dk.ey.com
International Tax and Transaction Services – Operating Model Effectiveness
Marc Schlaeger
Business Tax Advisory
Kristian Nørskov Stidsen
Mobile: +45 51-58-28-22 Email: marc.schlaeger@dk.ey.com
Mobile: +45 25-29-52-59 Email: kristian.n.stidsen@dk.ey.com
Inge Heinrichsen, Mobile: +45 25-29-37-61 Financial Services Tax Email: inge.heinrichsen@dk.ey.com
People Advisory Services
Morten S. Dalsgaard
Indirect Tax and Customs
Mick Jørgensen
Global Compliance and Reporting
Carsten Brendstrup
Legal Services
Susanne S. Levinsen
Greenland
Carina Marie G. Korsgaard
Mobile: +45 51-58-27-71 Email: morten.s.dalsgaard@dk.ey.com
Mobile: +45 51-22-16-43 Email: mick.joergensen@dk.ey.com
Mobile: +45 25-29-59-11 Email: carsten.brendstrup@dk.ey.com
Mobile: +45 25-29-35-99 Email: susanne.s.levinsen@dk.ey.com
Mobile: +45 25-29-37-64 Email: carina.m.g.korsgaard@dk.ey.com
Aarhus GMT +1
EY
+45 73-23-30-00 Værkmestervej 25 Fax: +45 72-29-30-30 DK-8000 Aarhus C Email: aarhus@dk.ey.com Denmark
International Tax and Transaction Services – Transaction Tax Advisory Søren Næsborg Jensen
Mobile: +45 25-29-45-61 Email: soeren.n.jensen@dk.ey.com
International Tax and Transaction Services – Transfer Pricing Henrik Morthensen
Indirect Tax and Customs
Asger H. Engvang
Mobile: +45 25-29-45-71 Email: henrik.morthensen@dk.ey.com
Mobile: +45 40-40-22-60 Email: asger.engvang@dk.ey.com
Kolding GMT +1
EY
Kolding Åpark 1, 3. Sal Kolding-6000 Denmark
Business Tax Advisory
Kristian Nørskov Stidsen
A. At a glance
Mobile: +45 25-29-52-59 Email: kristian.n.stidsen@dk.ey.com
Corporate Income Tax Rate (%) 22
Capital Gains Tax Rate (%) 22 Branch Tax Rate (%) 22 Withholding Tax (%)
Dividends 0/22 (a)
Interest 0/22 (b)
Royalties from Patents, Know-how, etc. 0/22 (c) Branch Remittance Tax 0 (d) Net Operating Losses (Years) Carryback
Carryforward Unlimited
(a) The general withholding tax rate is 22%, and the recipient can apply for a refund depending on the final tax rate. A withholding tax of 0% normally applies to dividends paid to group companies. See Section B. (b) The 22% rate applies to payments between related parties. The rate may be eliminated if certain conditions are met under the European Union (EU) Interest-Royalty Directive or a double tax treaty entered into by Denmark. See Section B. (c) The rate is 0% for royalties paid for copyrights of literary, artistic or scien tific works, including cinematographic films, and for the use of, or the right to use, industrial, commercial or scientific equipment. In addition, the rate may be reduced or eliminated if certain conditions are met under the EU Interest-Royalty Directive or a double tax treaty entered into by Denmark. (d) A Danish branch office or a tax-transparent entity may be re-characterized as a Danish tax-resident company if the entity is controlled by owners resident in one or more foreign countries, the Faroe Islands, or Greenland and if either of the following circumstances exists:
• The entity is treated as a separate legal entity for tax purposes in the coun try or countries of the controlling owner(s).
• The country or countries of the controlling owner(s) are located outside the EU and have not entered into a double tax treaty with Denmark under which withholding tax on dividends paid to companies is reduced or renounced.
B. Taxes on corporate income and gains
Corporate income tax. A resident company is a company incorporated in Denmark. In addition, a company incorporated in a for eign country is considered a resident of Denmark if its day-to-day management is in Denmark.
All tax-resident companies that are part of the same group must be included in a Danish mandatory joint taxation arrangement, regardless of whether these companies are subject to full or limited tax liability in Denmark. This mandatory joint taxation comprises all Danish affiliated companies as well as permanent establishments and real estate located in Denmark (for details, see Section C).
The income of resident companies that is generated in a foreign permanent establishment or real estate located outside Denmark is not included in the statement of the taxable income in Denmark, unless Denmark is granted the right to tax such income under an applicable double tax treaty or other international agreement, or the income is subject to controlled foreign company (CFC) taxa tion (see Section E).
Branches of foreign companies located in Denmark are taxed only on trading income and on chargeable capital gains derived from the disposal of trading assets that are located in Denmark and related to a Danish permanent establishment.
Rate of corporate tax. For the 2022 income year, resident and nonresident companies are taxed at a rate of 22%.
Capital gains. Capital gains are taxed as other income at a rate of 22%.
Capital gains derived from a disposal of shares in a group com pany (group shares), shares in a subsidiary (subsidiary shares) and own shares (shares issued by the company) are exempt from tax regardless of the ownership period, while losses incurred on such shares are not deductible.
The following are considered group shares:
• Shares in a company that is subject to mandatory joint taxation under Danish rules together with the shareholder of the company
• Shares in a company that is eligible for inclusion in an interna tional joint taxation arrangement under Danish rules (see Section C)
Shares are considered subsidiary shares if all of the following conditions are met:
• The shares are in a company in which the shareholder directly owns at least 10% of the share capital.
• The company is in a legal form that is similar to a Danish lim ited liability company.
• The company is subject to corporate tax in its home country (without exemption).
• The company is located in a country that has an agreement with Denmark on exchange of information.
Certain anti-avoidance rules apply if shareholders that do not each meet the requirements of holding group shares or subsidiary shares set up an intermediate holding company that by itself is able to meet the requirements.
In certain cases, capital gains may be reclassified as dividends. The reclassification of capital gains to dividends applies under specific circumstances only.
In general, capital gains derived from a disposal of shares that are not own shares, group shares or subsidiary shares (known as port folio shares) are taxable at the statutory corporate income tax rate of 22%, while losses are deductible, regardless of the ownership period. However, capital gains derived from the disposal of port folio shares do not trigger taxation if all of the following condi tions are satisfied:
• The shares relate to a Danish limited liability company or a similar foreign company.
• The shares are not publicly listed.
• A maximum of 85% of the book value of the portfolio company is placed in publicly listed shares.
• The company disposing of the portfolio shares does not buy new portfolio shares in the same company within six months after the disposal.
The current rules regarding taxation of portfolio shares are based on the mark-to-market method, under which gains and losses are computed on the basis of the market value of the shares at the beginning and end of the income year. It is possible to opt for taxation based on the realization method with respect to unlisted portfolio shares only. Listed portfolio shares must be taxed according to the mark-to-market method. Special rules apply to the carryforward of unused losses on portfolio shares.
Gains on the sale of goodwill and intellectual property rights are subject to tax.
Recaptured depreciation (see Section C) is taxed as ordinary in come at a rate of 22%.
Administration. In general, the income year for companies is the calendar year. Companies may select a staggered income year, which is an income year other than the calendar year. They may change their income year if justified by special circumstances.
In general, tax returns for companies must be filed within six months after the end of the companies’ income year. For compa nies with income years ending from 1 February to 31 March, tax returns must be filed by 1 August. Companies pay corporate tax on a current-year basis on 20 March and the remainder on 20 November. It is also possible to make a third current payment before 1 February of the following year. The final tax (calculated tax less paid current taxes) must be paid in November of the fol lowing year.
Dividends paid. In general, dividends paid are subject to withhold ing tax at a rate of 22%. However, withholding tax is normally not imposed on dividends paid to group companies if the Danish shares qualify as either group shares or subsidiary shares (see Capital gains) and if the withholding tax must be reduced or eliminated under the EU Parent-Subsidiary Directive or a double tax treaty. For a company owning Danish shares that are group shares rather than subsidiary shares, it is required that the withholding tax would have been reduced or eliminated under the EU Parent-Subsidiary Directive or a double tax treaty if the shares
had been subsidiary shares. In both cases, the recipient of the dividends must be the beneficial owner of the dividends and, accordingly, is entitled to benefits under the EU Parent-Subsidiary Directive or a double tax treaty.
The final tax rate for nonresident companies is generally 22%, with a rate of 15% for certain portfolio shares. The applicability of the 15% tax rate is described under Capital gains (conditions for deriving tax-exempt capital gains on portfolio shares). The 15% rate applies for corporations resident in jurisdictions with which Denmark has entered into a treaty on double taxation or exchange of information (if the shareholding meets the require ments described under Capital gains). A claim for a refund for the difference between the withholding tax of 22% and the final tax rate may be filed with the Danish tax authorities.
Withholding tax on dividends from a Danish subsidiary to a for eign company applies in the case of a redistribution of dividends if the Danish company itself has received dividends from a morethan-10%-owned company in another foreign country and if the Danish company cannot be regarded as the beneficial owner of the dividends received. Correspondingly, it applies if the Danish company has received dividends from abroad through one or more other Danish companies. Such dividends are generally sub ject to withholding tax at a rate of 22%, unless all of the follow ing conditions are met:
• The rate is reduced under a double tax treaty with Denmark or the recipient is covered by the EU Parent-Subsidiary Directive.
• The recipient is considered the beneficial owner of the divi dends.
• The general anti-avoidance rule does not apply.
Interest paid. In general, interest paid to foreign group companies is subject to withholding tax at a rate of 22%. The withholding tax is eliminated if any of the following requirements are satisfied:
• The interest is not subject to tax or it is subject to tax at a reduced rate under the provisions of a double tax treaty. For example, if withholding tax on interest is reduced to 10% under a double tax treaty, the withholding tax is eliminated com pletely.
• The interest is not subject to tax in accordance with the EU Interest/Royalty Directive. Under the directive, interest is not subject to tax if all of the following conditions are satisfied:
— The debtor company and the creditor company fall within the definition of a company under Article 3 in the EU Interest/Royalty Directive (2003/49/EC).
— The companies have been associated (as stated in the direc tive) for at least a 12-month period. — The recipient is beneficial owner of the interest received.
• The interest accrues to a foreign company’s permanent estab lishment in Denmark.
• The interest accrues to a foreign company, and a Danish parent company, indirectly or directly, is able to exercise control over such foreign company (for example, by holding more than 50% of the voting rights). Control must be fulfilled for a period of 12 months during which the interest is paid.
• The interest is paid to a recipient that is controlled by a foreign parent company resident in a country that has entered into a double tax treaty with Denmark and has CFC rules and if, under
these foreign CFC rules, the recipient could be subject to CFC taxation.
• The recipient company can prove that the foreign taxation of the interest income amounts to at least ¾ of the Danish corporate income tax and that it will not in turn pay the interest to anoth er foreign company that is subject to corporate income tax amounting to less than ¾ of the Danish corporate income tax.
The withholding tax and exceptions also apply to non-interestbearing loans that must be repaid with a premium by the Danish debtor company.
C. Determination of trading income
General. Taxable income is based on profits reported in the an nual accounts, which are prepared in accordance with generally accepted accounting principles. For tax purposes, several adjust ments are made, primarily concerning depreciation and write-offs of inventory.
Expenses incurred to acquire, ensure and maintain income are deductible on an accrual basis. Certain expenses, such as certain gifts, income taxes and formation expenses, are not deductible. Only 25% of business entertainment expenses is deductible for tax purposes. Expenses incurred on advisor fees are not deduct ible if they are incurred with respect to investments in shares that have the purposes of a full or partial acquisition of one or more companies and of the exercise of control over or participation in the management of these companies.
Inventories. Inventory may be valued at historical cost or at the cost on the balance sheet at the end of the income year. Inventory may also be valued at the production price if the goods are produced in-house. Indirect costs, such as freight, duties and certain other items, may be included.
Dividends received. Dividends received with respect to shares that qualify as group shares or subsidiary shares (see Capital gains) are exempt from tax to the extent that no tax deduction is claimed for the distribution by the entity making the distribution.
Dividends received by a Danish permanent establishment may be exempt from tax if the permanent establishment is owned by a foreign company that is tax resident in the EU, European Economic Area (EEA) or in a country that has entered into a double tax treaty with Denmark.
Dividends received on a company’s own shares are exempt from tax.
Seventy percent of the dividends that are not covered by the above tax exemption, such as dividends from portfolio shares, must be included in the taxable income of the dividend receiving company and taxed at the normal corporate income tax rate of 22%. A tax credit is normally available to the dividend receiving company for foreign withholding taxes withheld by the dividend distributing company.
Depreciation
Immediate deductions. For the 2022 income year, new acquisi tions not exceeding DKK30,000 (2022 amount) or with a lifetime
not exceeding three years are 100% deductible in the year of purchase. Computer software, operating equipment and ships for research and development (R&D), except operating equipment and ships used for exploration of raw materials, are also 100% deductible in the year of purchase.
Asset classes. Certain depreciable assets must be allocated among four asset classes:
• Operating equipment (including production facilities, machin ery, office equipment, hardware and certain software that may not be written off immediately) may be depreciated at an annual rate of up to 25%, using the declining-balance method.
• Certain ships (weighing more than 20 tons and leased out with out a crew) may be depreciated at an annual rate up to 12%, using the declining-balance method.
• Certain operating equipment with a long economic life (certain ships transporting goods or passengers, aircraft, rolling railway material, drilling rigs and facilities for producing heat and elec tricity) may be depreciated at an annual rate of up to 15%, using the declining-balance method. Facilities for producing heat and electricity with a capacity of less than 1 MW and wind-turbine generators (regardless of the capacity) may be depreciated at an annual rate of up to 15%, using the declining-balance method.
• Infrastructural facilities (facilities used for purposes, such as transporting, storing and distributing electricity, water, heat, oil, gas and wastewater and facilities with respect to radio, telecom munications and data transmissions) may be depreciated at an annual rate of up to 7%, using the declining-balance method.
It is important to distinguish between building installations and infrastructural facilities.
Buildings. Buildings used for commercial and industrial purposes may be depreciated at an annual rate of up to 4%, using the straightline method based on the purchase price, excluding the value of the land. Office buildings, financial institutions, hotels, hospitals and certain other buildings may not be depreciated. However, office blocks or office premises adjacent to buildings used for commercial purposes may be depreciated if the office blocks are used together with the depreciable buildings.
Others. Acquired goodwill, patent rights and trademarks may be amortized over seven years. Costs incurred in connection with the improvement of rented premises and properties (not used for habitation or other commercial or non-industrial purposes) on leased land may be depreciated at an annual rate of up to 20%. If the tenancy is entered into for a fixed number of years, the annual depreciation rate cannot exceed a rate that results in equal amounts of depreciation over the fixed number of years.
Recapture. The amount of depreciation claimed on an asset may be recaptured on the disposal of the asset. Recaptured depreciation is subject to tax at a rate of 22%. For assets depreciated under the declining-balance method, however, the consideration received is deducted from the collective declining-balance account, and, consequently, the recapture is indirect.
Advance depreciation. Advance depreciation is available on ships. A total of 30% (with a maximum of 15% in any single year) of
the expenditure exceeding DKK1,644,600 2022 amount) may be written off in the years preceding the year of delivery or completion. The relief is given if a binding contract has been concluded for construction or purchase of a ship. If a partnership enters into the contract, each partner must meet the DKK1,644,600 (2022 amount) requirement. If a ship is intended for lease, advance depreciation is not allowed in the year of acquisition, unless per mission is obtained from the local tax authorities. This rule does not apply to the ships included in the new asset classes (see Depreciation).
“Super deduction” for R&D costs. A “super deduction” is also available on costs concerning R&D. As a result of the COVID-19 pandemic, the deduction rate is increased in 2020, 2021 and 2022, meaning that costs connected to R&D can be deducted at a rate of 130% in 2020, 130% in 2021, 108% in 2023 through 2025 and 110% from 2026 and onward. Furthermore, it is ex pected that the 130% rate will also apply for 2023 and beyond (a proposal on this matter has been published). The “super deduc tion” is conditioned on the costs being connected to the taxpay er’s business. The deduction can be made either at once in the income year in which the costs are incurred, or over the course of five years, including the income year in which the costs are in curred.
Relief for trading losses. Trading losses and interest expenses may be set off against other income and chargeable gains. Losses in curred may be set off in full against the portion of the year’s taxable income not exceeding an amount of DKK8,872,500 (2022 amount). Losses exceeding DKK8,872,500 (2022 amount) may be set off against 60% of the taxable income for the year. As a result, a company may not reduce its taxable income to less than 40% of the taxable income exceeding DKK8,872,500 (2022 amount).
Losses, including prior-year losses, that cannot be set off against the taxable income for the year may be carried forward infinitely.
Losses may not be offset against interest and other capital income, net of interest paid, if more than 50% of the shares in the com pany changed ownership since the beginning of the year in which the loss was incurred. In addition, tax losses are forfeited by com panies that are not engaged in an activity at the date of change of ownership.
Groups of companies. Joint taxation of Danish affiliated compa nies, Danish permanent establishments of foreign affiliated com panies and real properties of foreign affiliated companies that are located in Denmark is compulsory. The jointly taxed income equals the sum of the net income of the jointly taxed companies, permanent establishments and real properties. An affiliation gen erally exists if a common shareholder (Danish or foreign) is able to control the company (for example, by holding more than 50% of the voting rights).
Joint taxation with foreign companies is voluntary. If a Danish company elects to be jointly taxed with a foreign company, all foreign affiliated companies must be included in the Danish joint taxation arrangement. These include all subsidiaries, permanent
establishments and real estate owned by the Danish company. If the Danish company is owned by a foreign group, the ultimate foreign parent company and all foreign companies affiliated with the ultimate foreign parent company are also included.
A company is considered to be an affiliated company if a control ling interest exists.
A 10-year period of commitment applies if a Danish company elects to be jointly taxed with its foreign affiliated companies.
Deduction of final losses in foreign subsidiaries. Regardless of hav ing chosen not to apply an international joint taxation scheme, a Danish parent company can deduct losses in foreign subsidiaries, permanent establishments or real estate if all of the following conditions are fulfilled:
• The parent company has not chosen international joint taxation.
• The subsidiary or the permanent establishment is resident in the EU/EEA, in the Faroe Islands or in Greenland (this condition does not apply to real estate).
• The subsidiary is directly owned by the parent company, or indirectly owned by intermediary companies, that are all resi dent in the same country as the subsidiary.
• The losses are final.
• A loss in a subsidiary would have been deductible if interna tional joint taxation had been chosen.
• A loss in a permanent establishment or real estate is deductible according to the general rules of the tax code.
• The determination of the loss is conducted in accordance with Danish rules.
The possibility has been introduced with effect from the 2019 income year, and tax guidance has been issued by the tax author ities concerning the possibility of reopening of the tax returns for the 2009-2018 income years and correcting them in accordance with the new rules.
D. Other significant taxes
The following table summarizes other significant taxes.
Nature of tax Rate
Value-added tax (VAT) 25% Labor market supplementary pension scheme (ATP); approximate annual employer contribution for each full-time employee DKK2,272 Payroll tax (Loensumsafgift)
Banks, insurance companies and other financial businesses; levied on total payroll 15%
Other VAT-exempt businesses, including some public bodies; levied on total payroll plus taxable profits, adjusted to exclude financial income and expenses 4.12%
Lotteries and information activities performed by tourist offices, other organizations and some public bodies; levied on total payroll 6.37% Publishers or importers of newspapers; levied on the value of newspapers sold 3.54%
E. Miscellaneous matters
Foreign-exchange controls. Denmark does not impose foreignexchange controls.
Debt-to-equity rules. Under thin-capitalization rules, interest paid by a Danish company or branch to a foreign group company is not deductible to the extent that the Danish company’s debt-to-equity ratio exceeds 4:1 at the end of the debtor’s income year and that the amount of controlled debt exceeds DKK10 million. Limited deductibility applies only to interest expenses relating to the part of the controlled debt that needs to be converted to equity to satisfy the debt-to-equity ratio of 4:1 (that is, a minimum of 20% equity). The thin-capitalization rules also apply to third-party debt if the third party has received guarantees and similar assistance from a group company of the borrower.
The Danish thin-capitalization rules are supplemented through an “interest ceiling rule” and an Earnings Before Interest, Taxes, Depreciation and Amortization (EBITDA) rule. These rules apply to controlled and non-controlled debt. Only companies with net financial expenses exceeding DKK21,300,000 and DKK22,313,400, respectively (2022 amounts), are subject to these supplementary rules. For jointly taxed companies, the thresholds apply to all of these companies together.
Under the “interest ceiling rule,” a company may only deduct net financial expenses corresponding to 2% (2022 rate) of the tax able value of certain qualified assets. Deductions for any excess net financial expenses are lost, except for capital losses, which may be carried forward for three years.
Under the EBITDA rule, a company may reduce its taxable income through the deduction of financial expenses by no more than 30%. Net financial expenses exceeding this limit are nondeductible but, in contrast to the interest ceiling rule, the excess expenses can be carried forward without any time limitation (if not restricted again by the EBITDA rule). The calculation must be made after taking into account a possible restriction under the interest ceiling rule.
Under the interest ceiling rule, a safe harbor of net financial expenses up to DKK21,300,000 (2022 amount) exists. Under the EBITDA rule, a safe harbor of net financial expenses up to DKK22,313,400 (2022 amount) exists. These expenses are always deductible, subject to restriction under the thin-capitalization rules.
If a company establishes that it could obtain third-party financing on similar terms, it may be allowed to deduct the interest that would normally be disallowed under the ordinary thin-capitalization rules described above. No arm’s-length principle can be applied to help the company escape the interest ceiling rule or the EBITDA rule.
Danish tax law does not recharacterize disallowed interest or impose withholding tax on it.
Anti-avoidance legislation. A general anti-avoidance rule has been implemented in the Danish domestic tax law. It is contained in Section 3 of the Danish Tax Assessment Act.
The anti-avoidance rule seeks to restrict the benefits of applicable tax law, including EU directives or a double tax treaty, claimed by a taxpayer who participates in an arrangement, or a series of arrangements, that has the primary purpose (or has as one of its primary purposes) to achieve a tax benefit that is contrary to the contents or purpose of the applicable tax law, EU directive or double tax treaty in question.
The global anti-avoidance rule is introduced in accordance with Article 6 of the EU Anti-Tax Avoidance Directive (ATAD) and applies to resident and nonresident companies.
In addition, certain recharacterization rules exist, such as a rule that recharacterizes debt as equity if the debt is treated as an equity instrument according to the tax rules in the country of the creditor.
Although a Danish company or taxable legal entity may change its domicile to another country, this would normally be consid ered a liquidation with the same tax effect as a taxable sale. The company can transfer its activities abroad, but, to prevent tax avoidance, such a transfer is considered a taxable disposal of the activities.
Controlled foreign companies. Danish CFC-taxation involves a Danish parent company being taxed on income generated in a foreign subsidiary or branch. If the CFC-rules apply, the Danish parent is taxed in Denmark on a proportional part (equal to the ownership interest) of the subsidiary’s income.
The following are generally the two main criteria for Danish CFC-taxation to apply:
• More than one third of the income in the subsidiary is CFCincome.
• The parent company alone or jointly with other group compa nies directly or indirectly owns more than 50% of the share capital, controls more than 50% of the votes or is entitled to more than 50% of the subsidiary’s profits.
The rules apply to financial companies only if more than one third of the CFC-income in the subsidiary derives from transac tions with the parent or associated persons.
A parent company can elect to include only the CFC-income as opposed to the total income of the subsidiary. Such election is binding for five years and applies to all subsidiaries.
CFC-income is generally financial income, royalties, gains on intellectual property and “other income from intellectual prop erty” (including embedded royalties). Goodwill is not considered intellectual property for CFC-purposes.
According to a substance test, CFC-taxation does not apply to “other income from intellectual property” if the subsidiary con ducts “significant economic activity related the intellectual prop erty, and this activity is supported by personnel, assets and premises.” CFC-taxation also does not apply to other income from intellectual property that is a product of R&D-activities carried out by the subsidiary or group-related companies located in the same jurisdiction as the subsidiary.
Anti-hybrid mismatch rules. Denmark has several anti-hybrid mismatch rules.
The rules are found in Section 2C and Sections 8C-8E of the Danish Corporate Tax Act.
Under Section 2C of the Danish Corporate Tax Act, branches of entities that are required to register in Denmark may be treated as separate entities for Danish tax purposes if certain conditions are met. This treatment may apply if the parent of the branch is located in a non-EU/non-treaty country or if the Danish branch is considered a separate entity for tax purposes in the parent’s coun try. Certain exceptions exist, and case-by-case evaluation is sug gested.
Under Section 8C of the Danish Corporate Tax Act, the defini tions used in Sections 8D and 8E are listed. A total of 17 new definitions are set forth following a rule change entering into force on 1 January 2020. For example, definitions are provided for “mismatch result,” “double tax deduction” and “hybrid mis match.”
Under Section 8D of the Danish Corporate Tax Act, if a hybrid mismatch leads to a double tax deduction for the same expense, the expense is, as a main rule, not deductible in Denmark. Additionally, an expense is not deductible if a hybrid mismatch leads to the payment being deductible in Denmark while not being taxable in the receiving party’s jurisdiction. A company is not allowed to deduct payments to the extent that such payments directly or indirectly finance deductible expenses and if the pay ments result in a hybrid mismatch through a transaction or a series of transactions between associated entities or if the payments are part of a structured arrangement. Section 8D also provides that a company must include income that would other wise be attributed to a disregarded permanent establishment, to the extent that a hybrid mismatch concerns income from a disregarded permanent establishment.
Under Section 8E of the Danish Corporate Tax Act, a company that from a tax perspective is also residing in another jurisdiction is not allowed to deduct payments, expenses and losses, which are deductible in both jurisdictions, to the extent that the other jurisdiction allows for such items to be set off against income that is not double included income. However, such payments, expens es and losses can be deducted from income that is not double included income if the other jurisdiction is an EU country and if the company is regarded as residing in Denmark under a double tax treaty, to the extent that the other jurisdiction denies the deduction of the payments, expenses and losses. Also, a jointly taxed company that is participating in a joint taxation or another form of tax-loss carryforward in another jurisdiction is not allowed to deduct payments, expenses or losses, to the extent that the other jurisdiction allows for such items to be set off against income that is not double included income. Payments, expenses and loses that are deductible in both jurisdictions and for which deduction is not denied under the provision described in the pre ceding sentence can only be deducted from double included income.
Transfer pricing. Transactions between affiliated entities must be determined on an arm’s-length basis. In addition, Danish compa nies and Danish permanent establishments must report summary information about transactions with affiliated companies as part of the company’s annual tax return.
Danish tax law requires entities to prepare and maintain written transfer-pricing documentation for transactions that are not considered insignificant. Enterprises can be fined if they have not prepared any transfer-pricing documentation or if the documen tation prepared is considered to be insufficient as a result of gross negligence or deliberate omission. The documentation can be prepared in Danish, English, Norwegian or Swedish and must be prepared no later than the deadline to file the summary informa tion about transactions with affiliated companies, which is an integrated part of the company’s annual tax return. The transferpricing documentation must be submitted to the tax authorities within 60 days on request.
From 2021 and onward, it is mandatory for companies to which the documentation obligation applies to submit its transferpricing documentation within 60 days after the deadline for submitting its tax returns. If a company does not comply with this requirement, it is risking considerable fines and discretionary changes to its taxable income.
The fine for failure to prepare satisfactory transfer-pricing docu mentation consists of a basic amount of DKK250,000 per year per entity for up to five years plus 10% of the income increase required by the tax authorities. The basic amount may be reduced to DKK125,000 if adequate transfer-pricing documentation is filed subsequently.
Fines may be imposed for every single income year for which satisfactory transfer-pricing documentation is not filed.
In addition, companies may be fined if they disclose incorrect or misleading information for purposes of the tax authorities’ assess ment of whether the company is subject to the documentation duty.
The documentation requirements for small and medium-sized enterprises apply only to transactions with affiliated entities in non-treaty countries that are not members of the EU/EEA. To qualify as small and medium-sized enterprises, enterprises must satisfy the following conditions:
• They must have less than 250 employees.
• They must have an annual balance sheet total of less than DKK125 million or annual revenues of less than DKK250 mil lion.
The above amounts are calculated on a consolidated basis (that is, all group companies must be taken into account).
Transactions between Danish affiliated entities are exempt from the documentation requirement unless one involved entity is subject to a special tax regime in Denmark.
Country-by-Country reporting. Entities belonging to a multina tional group with a consolidated revenue above DKK5.6 billion
(EUR750 million) are subject to Country-by-Country (CbC) Reporting and notification obligations. Denmark generally follows the Organisation for Economic Co-operation and Development guidelines on CbC reporting.
The notification must be submitted by the Danish company or permanent establishment no later than 12 months after the last day of the reporting period (the entity’s income year) to which the report relates. If there is more than one Danish entity in the group and these entities are subject to joint taxation in Denmark, the notification can be made by the appointed administrative entity of the Danish joint taxation group on behalf of all entities.
A surrogate or local filing of the CbC Report is required if there is no active agreement on automatic exchange of the report between Denmark and the country where the ultimate parent entity or another surrogate parent entity filing the report is tax resident.
F. Treaty withholding tax rates
Under Danish domestic law, no withholding tax is imposed on dividends paid to companies if both of the following require ments are satisfied:
• The shares are group shares or subsidiary shares (see Section B).
• A tax treaty between Denmark and the jurisdiction of residence of the recipient of the dividend provides that Denmark must eliminate or reduce the withholding tax on dividends, or the recipient is resident in an EU member state and falls within the definition of a company under Article 2 of the EU ParentSubsidiary Directive (90/435/EEC) and the directive provides that Denmark must eliminate or reduce the withholding tax on dividends.
As a result, the reduced treaty rates on dividends in the table below might be eliminated under Danish domestic law.
Dividends Interest (a) Royalties (b)
%
Algeria 5/15
15
Azerbaijan
(c)
(d)
(j)
(d)
10
3/5/10/15
10
5/10
10
0 Belgium
(c)
15 (g) Bulgaria
(c)
(c)
(c)
5/15
10 Chile
China Mainland (m)
(l)
10 Croatia
Czech Republic
(l)
(d)
(d)
0
10 Cyprus
10
Faroe Islands
15 (o)
(c)
(d)
5/10
20 Estonia
0
Dividends Interest (a) Royalties (b) % % %
Finland 0 (d) 0 0
Georgia
0/5/10 (f) 0 0
Germany 5 (d) 0 0
Ghana 5 (d) 0 8
Greece 18 0 5
Greenland 0 (e) 0 10
Hungary 0 (n) 0 0
Iceland 0 (d) 0 0
India 15 (p) 0 20
Indonesia 10 (o) 0 15
Ireland 0 (c) 0 0
Israel 0 (r) 0 0
Italy 0 (c) 0 0/5
Jamaica 10 (c) 0 10
Japan 0 (t) 0 (z) 0
Kenya 20 (q) 0 20
Korea (South) 15 0 10/15
Kuwait 0 (u) 0 10
Latvia 5 (c) 0 5/10
Lithuania 5 (c) 0 5/10 Luxembourg 5 (c) 0 0 Malaysia 0 0 10 Malta 0 (u) 0 0
Mexico 0 (c) 0 10 Montenegro 5 (w) 0 0 Morocco 10 (p) 0 10 Netherlands 0 (d) 0 0
New Zealand 15 0 10
North Macedonia 5 (u) 0 10 Norway 0 (d) 0 0 Pakistan 15 0 12
Philippines 10 (c) 0 15 Poland 0 (u) 0 5 Portugal 0 (l) 0 10 Romania 10 (c) 0 10
Russian Federation 10 0 0
Serbia 5 (c) 0 10 Singapore 0 (v) 0 10
Slovak Republic (i) 15 0 5
Slovenia 5 (u) 0 5
South Africa 5 (c) 0 0
Sri Lanka 15 0 10
Sweden 0 (d) 0 0 Switzerland 0 (d) 0 0
Taiwan 10 0 10
Tanzania 15 0 20
Thailand 10 0 5/15
Trinidad and Tobago 10 (x) 0 15
Tunisia 15 0 15
Turkey 15 (o) 0 10
Uganda 10 (c) 0 10
Ukraine 5 (c) 0 10
USSR (h) 15 0 0
United Kingdom 0 (c) 0 0
United States
0/5/15 (y) 0 0
Dividends
Non-treaty
(a) In general, all interest payments to foreign group companies are subject to a final withholding tax of 22%. Several exceptions exist (see Section B). As a result of these exceptions, in general, withholding tax is imposed only on interest payments made to group companies that would qualify as CFCs for Danish tax purposes or if the recipient is not considered to be the beneficial owner, according to the domestic interpretation. Effective from the 2006 income year, withholding tax on interest paid to individuals was abolished.
(b) Under Danish domestic law, the rate is 0% for royalties paid for the use of, or the right to use, copyrights of literary, artistic or scientific works, including cinematographic films, and for the use of, or the right to use, industrial, com mercial or scientific equipment. Under a tax treaty, the general withholding tax rate for royalties of 22% can be reduced to 0%. Royalties paid to a com pany resident in another EU country are not subject to withholding tax if the provisions of the EU Interest/Royalty Directive are met and if the recipient is considered to be the beneficial owner according to the domestic interpretation.
(c) The rate is 15% if the recipient is not a company owning at least 25% of the capital.
(d) The rate is 15% if the recipient is not a company owning at least 10% of the capital.
(e) The withholding tax rate is 0% if all of the following conditions are satisfied:
• The recipient directly owns at least 25% of the share capital of the payer for a period of 12 consecutive months that includes the date of the distribution of the dividend.
• The dividend is not taxed in Greenland.
• The recipient does not deduct the portion of a dividend distributed by it that is attributable to the Danish subsidiary.
If the above conditions are not met, the withholding tax rate is generally 22%. However, the rate is 15% for dividends on unlisted portfolio shares (shares held by a person owning less than 10% of the company’s shares).
(f) The withholding tax rate is 0% if the recipient owns at least 50% of the share capital in the dividend distributing company and has invested more than EUR2 million in the dividend paying company. The withholding tax rate is 5% if the recipient owns at least 10% of the share capital in the dividend paying company and has invested more than EUR100,000 in the dividend paying company. The withholding tax rate is 10% in all other cases.
(g) The rate is 22% for payments for the use of, or the right to use, trademarks.
(h) Denmark honors the USSR treaty with respect to the former USSR republics. Armenia, Azerbaijan, Kazakhstan, Kyrgyzstan, Moldova, Tajikistan, Turkmenistan and Uzbekistan have declared that they do not consider them selves obligated by the USSR treaty. Denmark has entered into tax treaties with Estonia, Georgia, Latvia, Lithuania, the Russian Federation and Ukraine.
(i) Denmark honors the Czechoslovakia treaty with respect to the Slovak Republic.
(j) The rate is 15% if the recipient is not a company owning at least 20% of the capital of the payer and has invested at least EUR1 million in the capital of the payer.
(k) The rate is 5% if the recipient is a company that owns at least 70% of the capital of the payer or has invested at least USD12 million in the capital of the payer. The rate is 10% if the recipient is a company owning at least 25%, but less than 70%, of the capital of the payer. For other dividends, the rate is 15%.
(l) The rate is 10% if the recipient is not a company owning at least 25% of the capital of the payer.
(m) The treaty does not cover Hong Kong.
(n) The withholding tax rate for dividends is 0% if the recipient owns at least 10% of the share capital in the payer of the dividends for a continuous period of at least 12 months. If this condition is not met, the dividend withholding tax rate is 15%.
(o) The rate is 20% if the recipient is not a company owning at least 25% of the capital of the payer.
(p) The rate is 25% if the recipient is not a company owning at least 25% of the capital of the payer.
(q) The rate is 30% if the recipient is not a company owning at least 25% of the voting power during the period of six months immediately preceding the date of payment.
(r) The withholding tax rate for dividends is 0% if the recipient owns at least 10% of the share capital in the payer of the dividends for a continuous period of at least 12 months. If this condition is not met, the dividend withholding tax rate is 10%.
(s) The rate is 5% if the recipient of the dividends is a company owning at least 25% of the capital of the payer.
(t) The withholding tax rate for dividends is 0% if the recipient owns at least 10% of the share capital in the payer of the dividends for a continuous period of at least six months. If this condition is not met, the dividend withholding tax rate is 15%.
(u) The rate applies if the recipient owns at least 25% of the share capital in the payer of the dividends for a continuous period of at least 12 months. If this condition is not met, the rate is 15%.
(v) The rate applies if the recipient owns at least 25% of the share capital in the payer of the dividends for a continuous period of at least 12 months. If this condition is not met, the rate is 10%.
(w) The rate is 15% if the recipient is not a company owning at least 25% of the voting power of the payer.
(x) The rate is 20% if the recipient is not a company owning at least 25% of the voting power of the payer.
(y) The rate is 15% if the recipient is not a company owning at least 10% of the shares of the payer. The 0% and 5% rates depend on applicable limitation-ofbenefit tests.
(z) The rate is 10% if the interest arising in a contracting state is determined by reference to receipts, sales, income, profits or other cash flow of the debtor or a related person; to any change in the value of any property of the debtor or a related person; to any dividend, partnership distribution or similar pay ment made by the debtor or a related person; or to any other interest similar to such interest arising in a contracting state, and if the beneficial owner of the interest is a resident of the other contracting state.
In addition to the double tax treaties listed in the table above, Denmark has entered into double tax treaties on savings, double tax treaties on international air and sea traffic, agreements on exchange of information in tax cases and agreements on promot ing the economic relationship. The following are the jurisdictions with which Denmark has entered into such agreements:
• Double tax treaties on savings: Anguilla; Aruba; British Virgin Islands; Cayman Islands; Curaçao; Sint Maarten; Bonaire, Sint Eustatius and Saba (formerly part of the Netherlands Antilles); Guernsey; Isle of Man; Jersey; Montserrat; and Turks and Caicos Islands
• Double tax treaties on international air and sea traffic: Bermuda, British Virgin Islands, Cayman Islands, Guernsey, Hong Kong, Isle of Man, Jersey, Jordan, Kuwait and Lebanon
• Agreements on exchange of information: Andorra; Anguilla; Antigua and Barbuda; Aruba; Bahamas; Barbados; Belize; Bermuda; Botswana; Brunei Darussalam; Cayman Islands; Cook Islands; Costa Rica; Curaçao; Sint Maarten; Bonaire, Sint Eustatius and Saba (formerly part of the Netherlands Antilles); Czech Republic; Dominica; Gibraltar; Grenada; Guernsey; Isle of Man; Jamaica; Jersey; Liberia; Liechtenstein; Macau; Marshall Islands; Mauritius; Monaco; Montserrat; Netherlands; Niue; Panama; Qatar; St. Kitts and Nevis; St. Lucia; St. Vincent and the Grenadines; Samoa; San Marino; Seychelles; Turks and Caicos Islands; United Arab Emirates; Uruguay and Vanuatu
• Agreements on promoting the economic relationship: Aruba; Curaçao; Sint Maarten; and Bonaire, Sint Eustatius and Saba (formerly part of the Netherlands Antilles)
Agreements on exchange of information with respect to taxes have been proposed with Belgium, Greenland, Guatemala and Kuwait.