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    tax:watch 2009/05(Taxwatch (Tax news in english)) 

    11-03-2009 12:43

    Af Hans-Henrik Nilausen and Lone Løschenkohl

    The tax reform compromise

    The Government has come to terms with its supporting party regarding the tax reform. Now only the tax reform bills are awaited.
     
    The main contents of the compromise are:
     
    Individual income taxation

    The following major changes in the individual income taxation will be carried through:

    • The 6 % medium tax rate is abolished.
    • The top tax rate remains unchanged (15 %).
    • The lower limit for the top tax is increased to DKK 406.000 in 2010 and to DKK440.000 in 2011.
    • In the period July 1 – 31 December 2009, It will be possible to cash in a special pension scheme to a favourable taxation.
    • The basic tax percentage is reduced to 3,76 % as of 2010.
    • The health contribution (8 %) is added to the basic tax and will thereby get the same income basis as the basic tax. This change will be phased in over the period 2012 -2019.
    • The employment deduction will be increased with 5,6 % over the period 2010 – 2019.
    • The tax value of the interest deduction will be reduced from now 33 % to 25 % phased in over the period 2012 – 2019. However, the tax value of interest expenses not exceeding DKK 100.000 for a married couple and DKK 50.000 for a single tax payer will maintain its present tax value.
    • The tax rate on share income will be reduced from 28 % to 27 % and from 45/43 % to 42 %.
    • The tax value of a number of deductions will be reduced from 33 % to 25 % phased in over the period 2012 – 2019.
    • A ceiling of DKK 100.000 for deduction to certain pension schemes will be introduced and a new equalization tax will be introduced on certain payments from pension schemes.       
    • The present tax exemption for employee bonds and shares will be cancelled as of 1, January 2010 and the value of such bonds/shares will be taxed as salary income.
    • The taxation of free telephone etc. will increase as of 2010.
    • As of 1 January 2010 a ceiling of DKK 50.000 in yearly deduction for travel expenses will be introduced.

    The taxation of businesses

    • The deduction for expenses in connection with the establishment of new businesses including expenses to auditor and lawyer will be abolished as of 2010.
    • The payroll duty for financial businesses will be increased from 9,13 % to 10,5 % in 2013.
    • Companies tax exemption for minority shareholdings will be abolished as of 2010 and a “stockprinciple” will be introduced with regard to future taxation. Dividends will be taxable in full and not as today where only 2/3 is taxable. The taxation of shares in subsidiaries (over 10 %’s shareholding) will be eased. Gains and dividends on such shares will always be tax exempt.
    • Companies cannot obtain cost refund in tax cases as of 2010. The costs can instead be deducted in the taxable income. 
    • The energy duties will be increased.
    • The VAT exemption for real property, property administration and travel agencies will be abolished.
    • A number of “green duties” will be introduced/increased in the transportation sector.

    Questions can be directed to Hans-Henrik Nilausen at HHN@bdo.dk
     
    Carry-forward losses lost?
     
    According to Danish tax law, a taxpayer may carry tax losses forward fully from one tax year to another if the loss cannot be used within the tax year where it occurs.
     
    There is nothing in the wording of the provision governing tax losses that makes the carry-forward of losses conditional on tax liability to Denmark. Until recently, the provision has also been administrated in a way, so that taxpayers with limited tax liability to Denmark could exploit losses from previous years if they had positive tax liable income in a subsequent tax year, no matter whether their Danish tax liability had been temporarily terminated in the period between the loss occurred and the income was received.
     
    However, it has recently been announced by the Danish tax authorities (SKM.2009.114) that if the tax liability has been interrupted at any time after the tax loss has occurred, the tax loss can no longer be carried forward.
     
    The announcement was made in connection to the special Danish tax on the hydrocarbon industry, but as the provision is a general provision on losses and the possibility of carrying losses forward, it is likely that this new interpretation of the provision also will be used on tax payers outside the hydrocarbon industry.
    The announcement is problematic in several ways. There is a major problem with this announcement as it will have effect for losses occurred from the year 2002, where the provision was introduced. Thereby the announcement introduces a change of administrative practice with retrospective effect, which generally is not accepted under Danish law. Furthermore, it is difficult to see that the interpretation of the provision which the announcement is based upon has support in the interpretation of the provision by the courts. Finally, the interpretation of the provision might be infringing EU-law as it will primarily be foreign tax payers that will be affected by this change of interpretation.
     
    There are thus a number of reasons for not expecting this change of interpretation to be upheld if tested at the National Tax Tribunal or at court, but until this new administrative practice has been disallowed, it has to be taken into consideration when foreign businesses consider to reassume business activities in Denmark.
     
    Questions can be directed to Lone Løschenkohl at LHL@bdo.dk
     
    Read here



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