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Danish Tax Initiatives Directed at Multinationals
On 29 October 2011, the recently appointed Danish Minister of Taxation announced plans aimed at multinational corporations in a press release. The plans also apply to other corporations who are present in Denmark, but pay no or very little Danish tax. The plans include a number of restrictions with regard to transfer pricing documentation requirements and limitations to deductibility of interest and carry forward of losses. Plans to increase the efforts from the tax authorities in the tax assessment of multinational corporations are included. The announced restrictions have not yet been presented in the form of a bill, but are expected to be introduced to Parliament during the spring of 2012. Taxand Denmark discusses the plans in detail and lays out the elements of the initiative including any restrictions.
The plans announced by the Minister of Taxation are to be carried out in three steps. Firstly, by increased efforts in the tax assessment of multinationals and increased public transparency in relation to tax payments by Danish companies (a form of "name and shame").
Secondly, a set of restrictions directed at companies conducting cross-border activities are to be implemented. The restrictions include:
- A requirement for a special auditor?s certificate stating that no evidence has been found to indicate that the company does not comply with the arm?s length principle if the corporation carry out transactions with non-EU/EEC/tax treaty nations, if the corporation has had tax losses for a number of years.
- A minimum fine for non-compliance with the requirements for providing transfer pricing documentation of 250,000 DKK (app. 33,600 EUR).
- Amendments to the right to receive a credit for taxes paid by Danish companies on royalties abroad.
Finally, the initiative includes three elements aimed at businesses in Denmark in general:
- The right to carry forward losses indefinitely is restricted. It is proposed to establish a system which is to be modeled over the German and French systems for carry forward.
- The current restricted right to deduct interest expenses will be further restricted.
- Joint and several liabilities for the payment of taxes of entities subject to joint taxation.
The Ministry of Taxation expects that the planned initiatives will increase the tax revenue in 2013 with approximately 625 million DKK (84 million EUR). As such, the announced initiatives are part of the general European trend to increase tax revenue. The initiatives will firstly affect multinationals that incur losses or limited profits in Denmark, e.g due to financing expenses etc. Nationals or multinationals incurring losses in Denmark due to large research or development investment will also be affected. This will have a negative economic effect for Denmark as a consequence and multinationals should consider in time whether the above initiatives could impact their Danish activities.