Article:

Resumption of creditor companies’ tax liability on interest income

29 March 2019

Anders Kiærskou , Manager, Tax |

Guidelines have been issued for resumption of creditor companies’ tax liability on interest income, if a foreign group company’s (debtor) right to deduct the interest expenses has been limited as a result of rules on thin capitalization.

A ruling from the Court of Justice of the European Union overrule the practice followed by the Danish tax authorities regarding the Danish tax rules on thin capitalization.

The ruling entails that a Danish creditor company must be exempt from taxation on interest income, if an EU/EEA-resident foreign group company’s (debtor) right to deduct the interest expenses has been limited as a result of rules on thin capitalization in the state of residence.

The following conditions apply:

  • The Danish creditor company has provided loan(s) to a group debtor company.
  • The foreign debtor company is located in another EU or EEA country (international joint taxation between the creditor and debtor companies is not required).
  • The foreign debtor company has not been granted tax deduction for the interest expenses according to the rules on thin capitalization of the resident state.
  • The Danish creditor company has been taxed on the corresponding interest income.

Consequently, on 7 January 2019, the Danish tax authorities published guidelines describing how taxpayers’ tax assessments for previous income years can be resumed.

Resumption of tax assessments going back as far as the income year 2006 is possible.

BDO can assist your company in determining whether resumption of previous years’ tax assessments is relevant in this respect and – if so – assist in requesting resumption.

Request for resumption must be submitted to the Danish tax authorities within 6 months of the date of publication of the guidelines on 7 January 2019.

The above article is taken from tax:watch, our electronic English newsletter on Danish Tax and VAT matters. tax:watch is issued on the last Friday of each month and is free of charge. Please sign up here.