On 3 October 2018, the Danish Minister of Taxation submitted a bill to the parliament to transpose the EU Anti-Tax Avoidance Directives (ATAD 1 and ATAD 2) into Danish tax law. The proposals include the extension of the existing hybrid mismatch rules, together with changes to controlled foreign company (CFC) legislation, interest expense deduction limitation rules, exit tax rules, the general anti-avoidance rule (GAAR) and arbitration provisions intended to eliminate double taxation.
The bill provides the following measures:

-Replacement of the current EBIT interest limitation rule with an EBITDA rule in accordance with the ATAD. Accordingly, interest ceiling rule limiting the deductibility of net financing expenses to 2.9% of the tax basis in qualifying assets with a safe harbor of DKK21.3 million. Earnings before interest and taxes (EBIT) rule limiting the deductibility of net financing expenses to 80% of EBIT with a safe harbor of DKK21.3 million. The bill also retains the existing rules on thin capitalization and interest ceiling( debt:equity ratio of 4:1).

-However, the EBIT rule will be substituted by an earnings before interest, taxes, depreciation and amortization (EBITDA) rule in accordance with the ATAD. The proposed EBITDA rule will provide:

• Exceeding borrowing costs may only reduce EBITDA with up to 30%.
• Safe harbor of DKK22.3 million (equal to €3 million).
• Companies subject to mandatory joint taxation must apply the rule on a consolidated basis.
• Borrowing costs in excess which are disallowed may be carried forward without time limitation.
• Unused interest capacity may be carried forward for a maximum of five years.
• The 30% ratio may be replaced by the actual EBITDA ratio of the consolidated group.
• Financial institutions are outside of the scope of the rule.
• Foundations and associations are within the scope of the rule.

-The introduction of a general anti-abuse rule (GAAR) in accordance with Article 6 of the ATAD, which will apply to both resident and nonresident companies as of 1 January 2020 or income years starting 1 January 2020 and thereafter.

-Amendment of the existing rules addressing hybrid mismatches and reverse hybrid companies.

-Changes to the current Danish exit taxation regime in order to further align the regime with the ATAD. The bill is expected to pass Parliament before the end of 2018.

The new EBITDA rule will be applicable from income years starting 1 January 2019 and thereafter.