Thin capitalization(Taxwatch (Tax news in english))
22-04-2009 14:46
Af
Hans-Henrik Nilausen
The Danish thin capitalization regulations are applicable, if the debt/equity ratio exceeds 4:1.
In the case, a Danish company’s interest deduction on controlled debt was cut off due to thin capitalization.
Decisive for the extent of the cut in interest deduction was the computation of the company’s equity. In this connection the Danish tax authorities had fixed the value of the company’s shareholding in a Norwegian company to the quotation price at the end of the income year in question.
The plaintiff argued that the value should be fixed to the amount to which the company had acquired the shareholding approximately 6 months earlier and referred in that connection especially to the following:
- That the shares had been acquired from an independent party for the market value
- That no essential changes in the Norwegian company’s position had taken place since the acquisition and
That it in a survey and valuation declaration before the Special Commissioner of Taxes was announced, that the shares in the Norwegian company only to a limited extent were traded on the stock exchange, so that the value at the stock exchange not in all cases could be equivalent to the market value.
As a starting point the High Court stated that the shares in the quoted Norwegian company in accordance with firm legal
practice should be fixed at the quotation price unless there were special circumstances.
The High Court found that neither the circumstance that the company in connection with the acquisition of a strategic, long term shareholding had been willing to acquire the shareholding to a price exceeding the quotation price, nor the fact that the extent of trading over the stock exchange, gave grounds to deviate from the quotation price as the market price.
Consequently, the High Court gave judgment in favor of the Tax Department.
Questions to this article can be directed to Hans-Henrik Nilausen at hhn@bdo.dk
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