The Customs and Tax Administration published National Tax Tribunal Case No. 122-0208149 on 30 June 2015. The Tribunal held that foreign exchange losses realized on the sale of shares of a subsidiary resident in another Member State are not deductible
In this case a Danish company incurred a loss on the sale of shares in a subsidiary resident in another EU Member State. The Tax Board denied the deduction with reference to the Danish Capital Gains Tax Act (CGTA) which does not take such losses into consideration.
The taxpayer claimed that the denial of the loss was incompatible with the Treaty on the Functioning of the EU (TFEU). In addition, reference was made to the decision of the Court of Justice of the European Union in X (Case C-686/13). In that case the ECJ decided that legislation of a Member State exempting capital gains on holdings for business purposes and similarly disallowing the deduction of capital losses on such holdings is compatible with the freedom of establishment.
Under the CGTA however gains and losses on the disposal of shares in a subsidiary are not taken into account for the calculation of taxable income. Therefore the issue was whether these losses were deductible.
Finally, the Tribunal rejected the arguments of the taxpayer, particularly because the Danish company had not opted to present its financial accounts in a foreign currency as permitted by article 3 of the CGTA. In addition, the Tribunal observed that the Danish rules do not treat cross-border transactions differently from domestic transactions.
