International debt forgiveness(Taxwatch (Tax news in english))
05-05-2010 07:15
Af
Allan Christophersen
Debt forgiveness is as a main rule taxable for a Danish debtor.
If, however, the forgiveness is part of a general settlement with creditors, the released amount is not taxable for the debtor. Instead unused losses eligible for carry-forward are reduced by the amount of the debt release under the settlement. This applies to both settlements by court order and voluntary settlements.
To avoid economic double taxation, no reduction is made to the extent a group company, as a creditor, forgives a debt because the creditor company may not deduct the loss due to the release.
The Danish tax authorities have in a recent binding ruling confirmed that a debt forgiveness granted by a Swiss company will have no adverse tax consequences for a Danish sister company even though it might have had according to the above rules. The Danish and the Swiss company were both owned 100 % by a Cyprus parent company.
According to Danish rules, group contributions can be made without Danish tax implications. Consequently, a group contribution amount received from Danish or foreign group company is as a main rule tax exempt for the Danish debtor company. However, if a foreign creditor company may deduct the loss on the debt pursuant to the tax legislation in its home country, the equivalent debt release will be taxable for the Danish debtor company.
The Danish tax authorities concluded in the ruling that as the conditions for tax exempted group contributions were fulfilled, it would not be necessary to test the debt forgiveness rules.
Consequently, if a Danish company can receive contribution from a foreign group company tax exempt this treatment will also apply for debt forgiveness from the same foreign group company.
Questions can be addressed to Allan Christophersen at alc@bdo.dk
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