Now, companies can postpone payment of exit taxes

27 February 2014

Companies subject to exit taxation related to transfer of assets/liabilities to other EU/EEA countries are able to postpone payment of the exit tax.

On 6 February 2014, the Danish Parliament passed a bill allowing companies to postpone payment of exit tax related to transfer of assets/liabilities to other EU/EEA countries. The purpose of the act is to bring the Danish rules on exit taxation in compliance with EU law.

On 18 July 2013, the EU Court of Justice overruled the Danish rules on exit taxation applicable to companies that transfer assets/liabilities to other EU/EEA countries. According to Danish law, such transfers are considered disposals of assets/liabilities subject to capital gains taxation.

In its ruling, the EU Court of Justice found the Danish rules on exit taxation to be in violation of EU law, because the exit tax was due immediately with no option to postpone payment.

The act involves an adjustment of the Danish rules on exit taxation, according to which it is now possible to postpone payment of the exit tax against payment of interest.

According to the new rules, the deferred tax must be repaid concurrent with return (income, gains, dividends) on the transferred assets, which would have been taxed in Denmark if the assets had remained in Denmark. However, the yearly repayment must always constitute at least 1/7 of the calculated exit tax.

As mentioned above, the act aims to bring the Danish rules on exit taxation in compliance with EU law. However, it remains to be seen whether the aim is reached with the amendments as a transfer of assets to other EU/EEA countries are still treated differently from a transfer internally in Denmark.

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.