In this article, we dive into a significant land registration tax ruling affecting the "transfer" of assets between partnerships. It concerns a specific provision in the Danish Land Registration Tax Act that opens up significant tax advantages when transferring properties between partnerships. This rule is highly relevant for companies' financial planning and the ability to optimize restructuring without being burdened by significant taxes.
Decision from the National Tax Court
A recent decision from the National Tax Court has clarified that "asset transfers" (i.e. transfers) between partnerships are exempt from the variable part of the registration tax, reducing the cost to a fixed tax of DKK 1,850 (2024 rate). This clarification is crucial for companies considering restructuring as it enables significant tax savings.
The decision is based on an interpretation of section 6a of the Danish Registration Tax Act, which expressly states that registration of changes of ownership in connection with corporate reorganizations, including mergers, demergers, conversions or transfers of assets, is only subject to a fixed tax. This exempts the variable fee of 0.6% of the change of ownership sum, which would otherwise be required, and depending on the value of e.g. a property, the variable fee can be a lot of money. See more about this below.
The case in brief
The case that led to this decision involved several municipalities that wanted to combine activities from different partnerships into a single partnership. The transfer included real estate and took place without cash consideration, but with the right to be admitted as a partner in the receiving partnership. The National Tax Tribunal assessed that this type of transfer of assets met the criteria in section 6a, as "shares etc." in the sense of the law was interpreted to also include ownership interests in partnerships, which was the "payment" that the municipalities received for contributing their properties to the overall partnership.
In addition to the above, properties owned in partnerships may, pursuant to section 4 of the Registration Tax Act and a contrary application of this, still be transferred without payment of registration tax if the transfer takes place as a transfer of partnership shares.
This is because when the property is owned by a partnership, it is the partnership that is listed as the title holder in the land register. Therefore, it does not appear from the land register who is a participant (partner) in the partnership, which means that partners can join and leave the partnership without being registered in the land register, which entails payment of registration fees.
Clarification of Supreme Court ruling from 2021
This interpretation is supported by a Supreme Court ruling from 2021, which clarified that partnerships can make "contributions of assets" under the conditions of § 6 a. This is an important clarification, as it was previously unclear whether partnerships were included in this rule.
These legal clarifications are essential for businesses as they open up new opportunities for tax-efficient restructuring without the added burden of variable registration fees. It's a shining example of how complex legal rules can have a direct impact on companies' financial and operational planning.
The Supreme Court ruling and the decision from the National Tax Tribunal thus ensures a more flexible and cost-effective way for partnerships to restructure ownership of real estate. This is an important clarification that can be of great financial importance to many companies.
The variable part of the registration fee
As mentioned above, a registration fee for real estate consists of a fixed part and a variable part. The fixed part is DKK 1,850 (2024 rate), while the variable part is 0.6% of the transfer price (price) of the property.
For a property with a price of DKK 3 million, for example, this corresponds to DKK 18,000, and the higher the price of the property or properties, the higher the variable part of the registration fee.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.