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Danish Stock Lending Period Maximum of 6 Months Abandoned

Denmark
A stock lending transaction where the lending period is not limited to a maximum of 6 months has according to Danish tax case law previously been qualified as a sale and purchase of the shares and not a stock lending transaction. The 6 months maximum now no longer applies to stock lending transactions which can be called with a notice of only a few days. Taxand Denmark takes a look at the impact of the change to the time-span of the stock lending period.

In a ruling of 20 September 2011, the Danish National Tax Assessment Board abandoned its previous practice according to which stock lending with a duration not limited to a maximum of 6 months would qualify as a sale and purchase of the shares and not a stock lending transaction for Danish tax purposes.

Going forward, a stock lending transaction not limited to a maximum of 6 months but with an option for both the lender and the borrower to call the loan with a notice of no more than a few days will qualify as a stock lending transaction for Danish tax purposes. A stock lending transaction with no maximum period of 6 months at most and no option to call the loan within a few days will still not qualify as a stock lending for Danish tax purposes and the transaction will therefore potentially be subject to capital gains taxation.

The new guidelines from the Danish tax authorities are aimed only at stock lending transactions concluded on or after 11 October 2011.

The new guidelines do not address the ruling of the Danish National Tax Assessment Board announced last year according to which a lender and not the borrower of the shares for Danish tax purposes was deemed the beneficial owner of the shares as well as dividends paid on the shares. This ruling applies directly to stock lending transactions involving manufactured dividends but no short selling of the shares.

Taxand's Take


The abolishment of the definitive 6 months maximum for stock lending transactions provides the parties to stock lending transactions with an option to adapt the stock lending transaction to suit the commercial needs of the parties to either achieved a tax treatment as a stock lending transaction or a sale and purchase of the shares. It may be possible for tax payers to apply the new guidelines also on stock lending transactions concluded prior to 11 October 2011 should the parties desire to do so.

Your Taxand contacts for further queries are:
Arne Riis
T. +45 72 27 33 22
E. ari@bechbruun.com

Carsten Pals
T. +45 72 27 34 77
E. cpa@bechbruun.com

Taxand's Take Author