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2012 |
Intra group sale of shares in Danish subsidiaries to be taxed as dividend Withholding tax on dividend to foreign conduit companies - an update Border Crossing January 2012 Tax Alert no. 1 Border Crossing April 2011 Border Crossing January 2011 |
News flash – Denmark
Ruling on "beneficial owner" - dividend
The Danish High Court has for the first time ruled in a case regarding the question of whether a Danish subsidiary of a foreign parent company had to withhold tax on dividend distributed to the parent company. The Court ruled that the parent company was the beneficial owner of the dividend, thus the dividend was tax exempt in Denmark as the parent company was resident in a EU-country.
The Court ruled that in this case the foreign parent company was to be recognized as the beneficial owner and not as a conduit/flow through company. The reason was that the parent company did not redistribute the received dividend to the owners of the parent company, but instead paid the dividend proceeds back to the Danish subsidiary as a loan. Thus the dividend proceeds did not flow through the parent company – so the parent company could not be regarded as a flow through company.
Our opinion
We do not yet know whether the Danish authorities will appeal the case to the Danish Supreme Court. Further, we do not know whether the ruling will have any impact on the many other cases going through the appeal system – including cases where the dividend has actually been redistributed to owners further up.
We are following the cases close and will inform further as soon as we know more.
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New tax-refund possibility regarding losses due to research and development expenditures (R&D)
In Denmark you can deduct any cost related to R&D in the year the expenditure is incurred, or deduct the expenditure over a 5 year period by 20% in the year the cost is incurred and each of the following 4 years.
To make it even more attractive to increase R&D activities, companies and self-employed individuals can get a tax refund on losses due to R&D expenditures incurred from income year 2012. If there is a net tax loss in the income year, then the company or the self-employed individual can get a tax refund corresponding to 25% of the R&D expenditures, as the tax refund is maximized to 25% of the total net loss for the income year.
Thus only losses caused by R&D expenditures will be eligible for a tax refund – losses from day to day business operations etc. will not be eligible for a tax refund. It must be conventional expense types that are used in the company’s own R&D activities. The purchase price for intangible assets is not included.
Further, the tax refund is capped to DKK 1.25 million – corresponding to 25% (the corporate income tax rate) of DKK 5.0 million in R&D expenditure/loss. If the income year is shorter than 12 month, the amount limit is lowered accordingly. Further, there is a consolidated limit for a company group with only one limit of DKK 1.25 million for the whole group regardless of the number of companies in the group (anti-avoidance). The same consolidated limit includes companies and self-employed businesses controlled respectively owned by the same individual (including close family, etc.). If there are more companies/self-employed businesses, the tax refund is allocated between the participants based on their part of the total expenditure.
A separate request must be filed to get the tax refund, and the request must be filed by the ordinary deadline for filing the annual tax return.
If a tax refund is granted, then the ordinary tax loss to carry forward is reduced correspondingly. Thus a tax refund of DKK 1 million will then reduce the tax loss to carry forward by DKK 4 million.
Our opinion
This initiative will make it even more interesting to use Denmark as a R&D base for foreign based groups – even though the tax refund is capped.
For more information – please contact us.
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Thin cap
The Danish Corporation Tax Act was changed a little regarding thin cap. The limit of deductible interest for companies in Denmark is at the moment DKK 21.3 million. Earlier the limit was indexed every year. In 2010 the indexing was put on hold from 2010 – 2013. The new and further change is a total cancellation of any future indexing of the limit, also from 2014 and onwards.
Our opinion
This is a change that first will have tax impact from 2014 – but it will nevertheless make it more difficult to finance activities.
For more – also about the special set of computing the thin cap impact – please contact us.
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RSM plus, Denmark, January 2012
Mikael Risager, TAX partner
Disclaimer:
We make certain reservations for errors and omissions in our minutes, and these minutes should not form the basis of arrangements without preceding advice. We are not responsible for any loss or actions based on the content and RSM plus is not responsible for any error or omission in the content.
Mikael Risager, TAX partner
Disclaimer:
We make certain reservations for errors and omissions in our minutes, and these minutes should not form the basis of arrangements without preceding advice. We are not responsible for any loss or actions based on the content and RSM plus is not responsible for any error or omission in the content.