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New gains on securities and foreign currency act.(Taxwatch (Tax news in english)) 

The Danish parliament has passed a bill to a new act on gains on securities and foreign currency. The new act involves that private investors – like companies, trusts etc. – must pay tax on premiums on Danish bonds, mortgage deeds etc.

The principal points in the new act are as follows:

• With effect for bonds and mortgage deeds acquired on January 27, 2010 or later all kinds of premiums are now taxable.
• Losses on bonds acquired on January 27, 2010 or later are tax deductible. This also applies for losses on purchase money mortgage and private loans. However major shareholders cannot deduct losses on loans to their own company. Likewise not is not possible to deduct losses on loans to close relatives.

• Deduction for losses on quoted bonds is conditioned on that the purchase has been reported to the tax authorities (SKAT). However, this rule will first have effect for bonds acquired on January 1, 2011 or later.
• Premiums on debt – often realized in connection with renewal of debt – will still be tax exempt for individuals.
• The rate for taxation of positive net capital income is lowered up to 2014 from the present rate of 51,5 % without church tax to 42 %. In 2010 the tax is lowered with 2 % to 49,5 %.
• As of 2011 for investment certificates there only has to be distinguished between two types: Bond based and share based. Premium and loss on bond based certificates are included in the capital income. Premium and loss on share based certificates are included in the share income. Losses however cannot be set off against other income.
• Companies will for debt assumed on January 27, 2010 or later be able to deduct losses on debt which must be discharged to a on beforehand fixed premium. This is relevant for losses on debt that have been issued as payment for machinery, good will and shares where the value of the debt is below 100 at the time of issuance.

The new rules involve that investors with holdings of quoted bonds – acquired before January 27, 2010 – with a price over 100 in certain cases with advantage can sell and then repurchase these bonds as a subsequent loss will be deductible. In order to obtain approval from SKAT to such a transaction it is a condition that in between the sale and the repurchase there is a real risk for fluctuations. This condition is most likely fulfilled for all quoted bonds.  

Questions can be addressed to Hans-Henrik Nilausen at hhn@bdo.dk