The Danish rules on joint taxation(Taxwatch (Tax news in english))
30-06-2010 07:15
Af
Hans-Henrik Nilausen
Joint taxation involves that a consolidation of taxable income has to be prepared for all affiliated companies. Earlier joint taxation was voluntary, but only possible if the parent company owned all of the shares in the subsidiary. As of the income year 2005 joint taxation is mandatory for all Danish affiliated companies and Danish permanent establishments/real properties. The only condition for joint taxation is that the companies are affiliated.
Companies are affiliated, if a company controls the majority of the votes in another/other companies. The joint taxable income is computed as a simple consolidation of the taxable incomes of each of the jointly taxed companies. This also applies to companies which are only partly owned. Thus, if a parent company controls for instance 60 % of the voting power in another company, 100 % of the income from that company has to be included in the joint taxable income.
As a main rule, income from a foreign permanent establishment/real property shall not be included in Danish companies taxable income, unless international joint taxation is elected.
If the group connection has not existed for the whole income year, it is only the income for the period, where the group connection has existed, that must be included in the joint taxable income. In connection with the disposal/acquisition of a subsidiary an interim account for the acquired/disposed company has to be prepared for tax purposes.
International joint taxation with foreign affiliated companies/permanent establishments/
real property is in principle still optional, but if joint taxation is elected, joint taxation will apply to all foreign affiliated companies both profit making and loss making and both underlying and overlying companies and also to foreign permanent establishments/real properties.
If international joint taxation is elected, the election will be binding for a 10 years period. However, joint taxation may be terminated during the 10 year period, but in that case all earlier deducted tax losses will be recaptured.
As mentioned Danish companies are no longer taxable in Denmark on income from foreign permanent establishments/real properties unless Denmark has the right to tax the income according to a double tax treaty or if international joint taxation has been elected. However, financial income from a permanent establishment in a tax heaven country will be taxable as CFC-income in Denmark.
Due to the tax credit it is still advantageous to elect joint taxation with foreign loss making companies/permanent establishments/real properties. For larger groups with both profit making and loss making foreign activities, it is more difficult to decide whether or not joint taxation will be advantageous.
It always depends on a concrete evaluation. However, unless the profit making activities are situated in countries with a corporate taxation exceeding 25 % - which is equivalent to the Danish corporate taxation - joint taxation will rarely be advantageous.
Questions can be addressed to Hans-Henrik Nilausen at hhn@bdo.dk
Til nyhedslisten