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Denmark: Changes in Corporate Tax and Withholding Tax

(June 26, 2012) On June 13, 2012, the Danish Parliament (Folketinget) passed L 173, draft legislation to amend the corporate tax law, withholding tax law, tax control law, tax administration law, and various other laws. (Katja Joo Dyppel & Laura Pakarinen, Denmark: Corporate Tax Amendments Adopted and New Rules on Withholding Tax Refunds Introduced, TAX NEWS SERVICE (June 14, 2012), International Bureau of Fiscal Documentation (IBFD) online database; L 173 Forslag til lov om ændring af selskabsskatteloven, kildeskatteloven, skattekontrolloven, skatteforvaltningsloven og forskellige andre love [L 173 – Bill to Amend the Corporation Tax, Withholding Tax, Tax Control Law, Tax Administration Law, and Various Other Laws] (June 13, 2012), Folketinget website.)

Some changes in the corporate tax include:

  • loss carry-forward: losses of up to DKK 7.5 million (about US$1.27 million), compared with DKK1 million in the draft version, can be carried forward, to be set off against future positive net income (Dyppel & Pakarinen, supra);
  • transfer pricing documentation: upon request, loss-making companies must issue a specific statement, prepared by an accountant, to tax authorities on their transfer pricing documentation for the loss-making years. The statement is to include an evaluation of the documentation's accuracy in depicting the transactions and conformity with transfer pricing legislation as well as an assessment of whether the prices are at arm's-length. Loss-making companies are those, e.g., “with losses in the previous 4 years and companies engaged in transactions with companies in tax havens” (Katja Joo Dyppel , Denmark: Corporate Taxation – Hearing on Proposed Amendments Launched, TAX NEWS SERVICE (Feb. 6, 2012), IBFD);
  • insufficient transfer-pricing documentation: fines are increased, with a fixed fine of DKK 250,000 (about US$42,487)and an additional fine of 10% on the income that increased as a result of a transfer-pricing adjustment (id.);
  • group companies: there is joint and several liability for corporate income tax and withholding tax for companies that are part of a group consolidation regime; and
  • alignment with OECD Model Convention: the wording on allocation of income to a permanent establishment was changed to correspond with the wording of the 2010 version of the Organisation of Economic Co-Operation and Development's Income and Capital Model Convention of July 22, 2010 (id.; OECD Income and Capital Model Convention and Commentary (2010), IBFD website).

In regard to withholding tax, the draft legislation has new provisions on refunds of the withholding tax on outbound dividends, interest, and royalties:

  • a six-month (instead of 30-day) timeframe for tax authorities to process a refund claim, before accrual of interest on the claim begins. This new limit will not apply, however, if the applicant fails to give the tax authorities the necessary information and documentation (Dyppel & Pakarinen, supra);
  • reduction of the interest rate on claims for refunds “to 0.4% per commenced month plus a supplement calculated by the Nordic Stock Exchange Rate on the redemption of certain yields (0.1% in 2012)” (id.); and
  • possible requirement of tax authorities that the applicant post security before settlement of the claim, if there is reason “to believe that the applicant would not pay back the amount if it is later decided that the applicant was not entitled to a refund.” (Id.)