On 23 February 2018, the Danish Ministry of Taxation published the bill on corporate taxation. The bill amending the Danish company taxation is as follows:
Permanent establishment (PE)
The Danish government explicitly states that non-Danish investors engaged in long-term investment, such as through private equity, venture or infrastructure funds, will not have a permanent establishment in Denmark.
In its new ruling, the National Tax Board considered whether foreign limited partners in a Danish limited partnership were deemed to have a permanent establishment in Denmark (and thus subject to limited tax liability in Denmark) due to their participation in the Danish limited partnership.
The National Tax Board ruled that the foreign limited partners in the Danish partnership did not have a permanent establishment in Denmark. In arriving at this conclusion, the National Tax Board emphasized the crucial importance of the limited partnership being independent of the management company in the sense that the directors of the general partner were independent of the management company.
It is expected that the bill will pass parliament during spring 2018 and will have effect from the income year 2017.
Thin capitalization rule
The proposal expands the rule on tax exemption for the creditor to cover situations where the interest deduction of a nonresident subsidiary has been restricted under thin capitalization rules in another EU or EEA Member State. However, the exemption cannot exceed the interest deduction restriction that would have been applicable if both companies had been tax resident in Denmark. The proposal will enter into force on 1 July 2018. However, the tax authorities expect to publish a circular allowing companies to apply the rules for previous income years.
Dividends treatment
Capital gains from the sale of shares by a nonresident taxpayer will normally receive capital gains treatment in Denmark. In order to prevent that dividends are artificially disguised as capital gains through internal group reorganizations, section 2 D of the Danish corporate tax act treats the proceeds from certain sale of shares as dividends.
The proposal is targeting section 2 D(2), second sentence, according to which cash remuneration received by a seller of shares in a target company receives dividend treatment if the seller subsequently owns shares in the target company or a company that is affiliated with the target company. The proposal will expand the rule so that it will be applicable if the seller, or an affiliated company, subsequently owns shares in the target company or a company that is affiliated with the target company. A similar law change is proposed regarding certain cross-border mergers.The proposal will enter into force on 1 July 2018. According to the commentary to the proposal the Danish court-based substance over form rule may potentially be applicable to cases where taxpayers have made use of the loophole.
