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    Exemption from Danish CFC taxation(Taxwatch (Tax news in english)) 

    08-09-2010 07:15

    Af Karsten Gianelli

    A Danish company will only have to include the income from foreign subsidiaries or foreign PEs if it has chosen international tax consolidation.

    However, the income in a Danish company’s foreign subsidiaries or foreign PEs may be taxable for the Danish parent company pursuant to the Danish CFC rules.

    This will be the case if

    • more than 50% of the foreign subsidiary/PE’s income is financial income (interest, dividends, gains and losses on financial assets, certain royalties, income from financial leasing and other financial activities); and
    • more than 10% of the foreign subsidiary/PE’s assets are financial assets.

    However, the income of the foreign subsidiary/PE may be exempt from Danish CFC taxation at the Danish parent if the following conditions are met:

    • The foreign subsidiary/PE has a domestic license to operate as insurance company, bank, stockbroker or financial administrator and is subject to supervision from the relevant financial authorities in its home country.
    • The foreign subsidiary/PE’s main income derives from customers in its home country.
    • The foreign subsidiary/PE’s main income derives from not group related customers.
    • The foreign subsidiary/PE is not overcapitalized.
    • The Danish taxation of dividends from the foreign subsidiary to its Danish parent is eliminated or reduced based on the Parent/subsidiary directive or a tax treaty.

    The Danish subsidiary will have to ask for permission from the Danish Tax Assessment Council in order to apply the exemption.

    The Danish Tax Assessment Council has recently ruled that a foreign subsidiary/PE must meet all of these conditions in order to be exempt from Danish CFC taxation. Thus, Danish CFC taxation will apply to the income of the subsidiary/PE if just one of the conditions are not met.

    Questions can be addressed to Karsten Gianelli at kgi@bdo.dk



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