Global Tax Alert | 15 October 2013

Denmark publishes proposed exit tax rules

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On 7 October 2013, the Danish Minister of Taxation published a draft bill which amends the rules on exit taxation. The background for the draft bill is the EU Court of Justice’s decision of 18 July 2013,1 where Danish exit taxation rules were held to be incompatible with the freedom of establishment in the EU and EEA (European Economic Area).

The draft bill does not amend the existing Danish exit taxation rules, and a transfer of assets out of Danish tax jurisdiction will thus continue to trigger a final exit tax. However, companies are provided with the option of deferring payment of exit taxes. This will trigger late payment interest, but a bank guarantee is not required. The new rules will be applicable for income year 2013 and onwards. A grandfathering rule is proposed for taxpayers that were subject to exit taxation in income year 2008 and onwards.

The scope of the proposed rules includes the following transactions:

  • Migration of a Danish company to a country that is a member of the EU or EEA.
  • Transfer of the corporate seat of a SE company or a SCE company out of Denmark.
  • Transfer of assets/liabilities from a resident company to a permanent establishment (PE) in a country that is member of the EU or EEA.
  • Transfer of assets/liabilities from a Danish PE to the head office of a company that is tax resident in a country that is member of the EU or EEA, or to a PE in a country that is member of the EU or EEA. In the latter case the wording of the draft law does not require that the head office is located within the EU/EEA.

An election to defer payment of an exit tax means that an exit tax balance must be established equal to the amount of the deferred exit tax. The balance is charged late payment interest of at least 3 % per annum.

The exit tax balance must be settled by annual installments equal to the higher of: (i) actual/deemed income relating to the assets multiplied by the applicable Danish corporate tax rate, or (ii) 1/7 of the exit tax balance at the time it was established. Deferred exit taxes will thus be paid within a maximum period of seven years.

Payment of deferred exit taxes for an income year falls due on 1 November in the following calendar year and must be made no later than 20 November.

Companies that have been subject to exit taxation in the period 2008-2012 regarding transactions that are within the scope of the new rules are given the opportunity to apply the new rules retroactively for this period. Retroactive application is conditioned upon: i) that the company still owns the asset/liability, and ii) that the asset/liability has not been transferred out of the EU/EEA.

The tax deferral under the grandfathering rule is equal to the original exit tax, less the installments that should have been settled if the new rules had been applicable at the time of the transaction. A refund does not carry interest. An application under the grandfathering rule must be submitted to the tax authorities no later than 30 June 2014.The refund must be made no later than 20 November 2014.

Endnotes

1. C-261/11.

For additional information with respect to this Alert, please contact the following:

Ernst & Young P/S, Copenhagen
  • Jens Wittendorff
    +45 5158 2820
    jens.wittendorff@dk.ey.com
Ernst & Young GmbH Wirtschaftsprüfungsgesellschaft, Munich
  • Dr. Klaus von Brocke
    +49 89 14331 12287
    klaus.von.brocke@de.ey.com
Ernst & Young LLP, Scandinavian Tax Desk, New York
  • Martin Norin
    +1 212 773 2982
    martin.norin@ey.com

EYG no. CM3882