International Taxation

In May and June new rules on international taxation, sale of companies with tax losses carried forward, and remission of debt were enacted by the Danish Parliament.

The new Danish rules on international taxation are quite complex. The following is a short summary of the most important changes and new rules. It is not intended to describe the rules in detail and no action should be taken nor decision made without further advice.

In many situations Danish companies can consolidate the profit or loss of a foreign subsidiary for tax purposes. Prior to the change, the foreign subsidiary was treated as a branch operation and the tax computation was made as if the double tax treaty between Denmark and the foreign country applied. The practice was only a reflection of an internal Danish calculation rule and not covered by the treaty.

In cases where relief was granted according to the exemption method the profit of the foreign subsidiary was not actually subject to Danish taxation.

According to the new rule, it is now only possible to receive credit relief in the calculation of the Danish tax from a consolidated foreign subsidiary.

Taxation in connection with a foreign company's withdrawal from the joint taxation scheme:

New rules have been enacted which tighten the rules regarding retaxation of previously deducted losses in connection with the withdrawal of a foreign subsidiary from a joint taxation scheme.

This means that although the benefits of a tax consolidation still exist, greater care must be exercised in determining when tax consolidation with any given subsidiary should be terminated.

CFC Rules:

CFC rules have now been enacted in Denmark whereby low taxed financial income earned by a foreign subsidiary under certain conditions is regarded as income in the Danish holding company.

The rules apply if
- a Danish parent company directly or indirectly owns more than 50% of the share capital, or directly or indirectly controls more than 50% of the voting shares in a foreign company
- the foreign company's activity is mainly of a financial nature, and
- it is taxed considerably more leniently than according to Danish rules.

Corporations Managed and Controlled from Denmark:

Prior to the recent changes companies were fully tax liable to Denmark only if they were registered in Denmark.

The new rules make it possible to tax foreign companies if the company is managed and controlled in Denmark. In this situation management and control is deemed to take place where the decisions (by the Board or management) concerning the daily management of the company are made. If the company has double domicile, the question of double taxation is determined according to the relevant double taxation treaty.
This article is intended to provide general information, and no transaction should be undertaken without prior advice on the specific situation.

If further information is needed, please contact Senior Manager Niels Villadsen or Tax Director Verner Rasmussen on telephone +45 3927 7200 or by fax + 45 3927 2815.