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New Danish Corporation Act(Taxwatch (Tax news in english)) 

On May 29 the Danish Parliament passed a new corporation act including some changes in the tax regulations.

Main changes

• The minimum share capital in private limited companies has been reduced to DKK 80.000.
• It is possible to postpone the payment of the subscribed share capital. However, at least 25 % of the subscribed share capital must always be paid up. In a private limited company, the paid up share capital must always be at least DKK 80.000.
• It is not mandatory to prepare an evaluation report in connection with insertion of quoted shares and assets measured to market value and presented individually in the annual accounts. The management must instead prepare a statement which in its contents is similar to the contents of an evaluation report. This relief may be used in connection with foundation, increase of capital and in connection with distribution of other assets than cash.
• It is under certain circumstances possible for a company to co-operate in connection with the finance of the purchase of the company itself.
• The possibility to provide advances to parent companies in non EC/EEC countries has been improved.
• A register for all capital owners holding more than 5 % of the shares in a company will be established.
• Companies will have more options in determining the management structure. They may opt to establish a board of directors and a management or a supervisory board and a management or in private limited companies only a management. A supervisory board takes care of the control role which also a board of directors takes care of, but a supervisory board is not engaged in the management contrary to the board of directors.
• The 10 % limit for acquisition of own shares have been abolished. In future it is possible to acquire own shares within the frames of the company’s free equity reserves. Also private limited companies may acquire own shares.
• The demand of a statement from an adjuster in connection with a capital decrease to cover losses has been abolished.
• If the shareholders agree it is possible to disregard from several documents in connection with merger and de-merger.
• The demand to register a carried through capital decrease has been abolished. However, the decision to decrease the capital should still be notified. The accomplishment of the decrease will take place automatically unless it is notified that the decrease should not be carried through. The creditors time limit to raise their claims is shortened from 3 months to 4 weeks.

Shareholders loans 
In the bill it was originally suggested to abolish the injunction against shareholders loans. However the injunction was not abolished. Even though it is still not legal for corporation purposes to provide shareholders loans, tax wise such illegal loans are still treated as any other loan.
 
Consequently, if a shareholder loan is provided on market terms the loan will have exactly the same tax consequences as any other loan. The shareholder may deduct interest expenses on the loan and the company will be taxable on the interest income.
 
If on the other hand a shareholder loan is not on market terms, but instead is provided on beneficial terms for the shareholder, tax adjustments may be the consequence. An economical benefit for the shareholder may in that case be taxed as dividend or as remuneration for work performed.
 
Tax exempt business conversion
According to the new corporation Act, the time limit for notification of a company’s foundation to the Companies Register has been fixed to a fortnight. It will not be possible to obtain exemption for this time limit.
 
According to the act on tax exempt business conversion, the necessary documents must be filed within one month. With the new time limit in the corporation act, the necessary corporate document will thus always be drafted before the one month time limit in the act on tax exempt business conversion expires.
 
Adjustment of the group definition in the tax consolidation regulations
I connection with the new corporation act an adjustment has been made to the group definition in the corporation tax act so that it matches the definition in the corporation act and in the act on financial statements.
 
Decisive influence is now defined as the authority to control a company’s economical and operating decisions. If a parent company holds less than 50 % of the voting power in a company decisive influence will be the case if the parent company has
 

1. The right of disposal of more than 50 % of the voting rights due to an agreement with other shareholders
2. The authority to govern the financial and operating issues in a company due to statutes or agreement
3. The authority to point out or dismiss the majority of the members in the top management body and this body holds the decisive influence over the company
4. The right of disposal of the actual majority of the votes on the general meeting or in a similar body and thereby holds the actual influence over the company. 

For groups rendering accounts according to the international accounting standard (IAS) the new definition will not involve any changes as the new definition like the old definition was in accordance with the group definition in IAS.

According to the commencement provision, it is up to the economy minister to fix the time for commencement of the new corporation act. In  that connection it is assumed that the changed group definition in the tax consolidation regulations will have effect as of the first accounting year after the commencement date.     
 
Questions to this article can be directed to Hans-Henrik Nilausen at HHN@bdo.dk
 
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