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Tax reform - lapse of cost coverage for companies(Taxwatch (Tax news in english)) 

According to the proposed tax reform, the possibility to obtain cost coverage for companies and trusts for expenses in connection with tax cases will be abolished.

In stead companies and trusts may deduct the expenses in the taxable income.
 
In connection with the reading of the proposal, the Ministry of Taxation has stated, how the change in the law, will affect the right to deduct expenses in tax cases:

• Companies and trusts may deduct all expenses defrayed in connection with tax cases no matter when the expense has been defrayed.
• Self-employed individuals may deduct all expenses defrayed in connection with tax cases up to the time, where a decision has been made by the tax authorities (SKAT), which in its turn is then appealed with the consequence that cost coverage may be obtained.

According to the proposed commencement provision, the abolishment of the cost coverage for companies and trusts will have effect for costs in tax cases that are appealed in the administrative system or are brought before the courts after the effective date of the change in the law.
 
These provisions will according to the proposal be effective as of the announcement in the Danish official Gazette that is a few days after the proposal has been passed by the Parliament, which is expected to take place on May 28, 2009.
 
Therefore, it is not decisive when the costs are actually defrayed but when the case has been appealed or brought before the courts.
 
If companies or trusts contemplate to appeal tax assessments or to bring them before the courts it should therefore be given careful consideration to appeal or bring the case before the courts as soon as possible in order to maintain the possibility to obtain cost coverage.
 
Please notice that the proposal only concerns companies and trusts. Therefore, individuals will still be able to obtain cost coverage in tax cases.
 
Questions to this article can be directed to Hans-Henrik Nilausen at hhn@bdo.dk

Please read the tax:watch 10/2009 here