On 28 December 2018, the Danish Ministry of Taxation has published a new legislation (Law No 1726) for the implementation of the measure of the EU Anti-Tax Avoidance Directive (ATAD1) and the Directive as amended (ATAD2). Â The measures are:
Interest limitation rule:
- The 80% of current EBIT rule is replaced with the 30% of EBITDA limitation, with excess interest expense may be carried forward indefinitely and excess interest capacity carried forward for five years;
- Excess financing costs subject to the limit are defined as net financing costs after the deduction pursuant to the 4:1 debt-equity rules and the standard interest rate rules;
- The taxpayer is given the right to deduct their exceeding borrowing costs up to DKK 22,3 million (approximately EUR 3 million);
- Companies subject to mandatory joint taxation must apply the rule on a consolidated basis; and
- The limitation does not apply to loans taken before 17 June 2016. Also financial institutions are excluded from its scope.
GAAR:
Existing Danish tax law contains a court-based anti-avoidance rule with a limited scope. The new general anti-avoidance rule (GAAR), which allows the tax authority to ignore an arrangement or a series of arrangements that have been put into place for the essential purpose of obtaining a tax advantage that defeats the object or purpose of the applicable tax law, and not for valid commercial reasons that reflect economic reality. The GAAR is applicable from 1 January 2019.
Hybrid-mismatch rules:
The amendment of existing hybrid-mismatch rules, including:
- The removal of existing rules for the recharacterization of a company as PE if disregarded by the foreign parent and the rules for recharacterization of controlled debt as equity;
- The expansion of the existing rules for the recharacterization of a branch office or partnership as a company when treated as a corporation in the jurisdiction of residence of the controlling entity; and
- The addition of new ATAD2 rules regarding double deductions, deductions without inclusion (including in relation to hybrid entities and PEs), and double non-taxation of PEs and reverse hybrid companies.
- In addition to the above, the law also includes measures to comply with EU directives on dispute resolution and on VAT rules for vouchers and place of supply for small digital service suppliers.
The new exit tax and hybrid-mismatch rules generally apply from 1 January 2020.
