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Tax neutral reorganisations(Taxwatch (Tax news in english)) 

The recent tax reform has changed the rules on tax neutral mergers, divisions, transfers of assets and exchanges of shares. Thus, the basic conditions for tax neutral reorganisations in Denmark are as of 2010 as follows:
 
Mergers
The main condition for a tax neutral merger is that at least one share must be issued in the receiving company (not required if the transferring company is a 100% owned subsidiary of the receiving company). The consideration to the shareholders of the transferring company may be paid by issuance of shares in the receiving company as well as in cash. However, please note that the tax neutrality only applies to the extent the consideration is received as shares in the receiving company.
 
Permission from the Tax Authorities is not required.
 
Divisions
The conditions for a tax neutral division are:

• At least one share must be issued in the receiving company/companies. The consideration to the shareholders of the transferring company may be paid by issuance of shares in the receiving company/companies as well as in cash. However, please note that the tax neutrality only applies to the extent the consideration is received as shares in the receiving company/companies.
• The consideration received by each shareholder in the transferring company must equal the value of the shareholders’ shares in the transferring company.
• In case of a partial division the transferred assets and liabilities must constitute a branch of activities.

A tax neutral division may be completed under two different sets of rules:

• By permission from the Tax Authorities in which case a business reason for the transfer of shares must be established, OR

Without permission from the Tax Authorities, in which case no business reason must be established but the following further conditions must be fulfilled:

• The value of the total consideration to the shareholders of the receiving company must equal the market value of the transferred assets and liabilities.
  • The assets:obligations ratio in the receiving company/companies must equal the assets:obligations ratio of the transferring company (obligations are the sum of debt and other obligations).
  • If any shareholder in the transferring or any receiving company holds at least 10% of the shares in any of these companies, these shares cannot be sold or transferred for a period of three years after the division.

Transfer of assets
The conditions for a tax neutral transfer of assets are:

• The consideration received by the transferring asset can only be paid by the issuance of shares in the receiving company, i.e. no cash consideration is possible.
• The transferred assets and liabilities must constitute a branch of activities.

A tax neutral transfer of shares may be completed under two different sets of rules:

• By permission from the Tax Authorities in which case a business reason for the transfer of shares must be established, OR
• Without permission from the Tax Authorities, in which case no business reason must established. However, the transferring company cannot not sell or transfer any shares in the receiving company for a period of three years after the transfer of assets.

 
Exchange of shares
The conditions for a tax neutral exchange of shares are:

• The acquiring company must own or by the transaction acquire shares bearing a majority of the votes in the acquired company.
• The consideration to the shareholders of the acquired company may be paid as shares in the acquiring company as well as in cash. However, please note that the tax neutrality only applies to the extent the consideration is received as shares in the acquiring company.

A tax neutral exchange of shares may be completed under two different sets of rules:

• By permission from the Tax Authorities in which case a business reason for the exchange of shares must be established, OR
• Without permission from the Tax Authorities, in which case no business reason must be established but the following further conditions must be fulfilled:
  • The value of the total consideration to the shareholders of the acquired company must equal the market value of the transferred shares in the acquired company.
  • The acquiring company cannot sell or transfer any shares in the acquired company for a period of three years after the exchange of shares.

Questions to this article can be directed to Hans-Henrik Nilausen at HHN@bdo.dk