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Existing Danish tax losses to be reported or forfeited
Within 2014 or 2015 a central digital register for losses carried forward for tax purposes will be introduced in Denmark. The pending proposal will have the significant effect that taxpayers forfeit the right to utilise tax losses if they fail to report the losses in a timely manner. Taxand Denmark discusses the implications for corporate taxpayers.
On 26 February 2014 the Minister of Taxation proposed new tax legislation introducing a one time reporting obligation for existing tax losses carried forward by corporate taxpayers. The obligation to report losses to the Danish tax authorities will, if the proposal is adopted by the Parliament, be imposed on all corporate taxpayers, as well as foundations and associations subject to tax under the Foundation Tax Act.
Also included are foreign companies deemed to be effectively managed in Denmark and Danish permanent establishments of non-resident taxpayers.
The registration must comprise all losses from the tax year 2002 and subsequent years and must be made within a 3 month window, the starting date of which has not been decided yet. The registration must include a renewed reporting of losses previously reported to the tax authorities. Additionally, all tax exempt restructurings completed in the same period must be separately registered, if losses have been transferred from one entity to another as a result of the restructuring.
It is important to note that failure to report the tax losses in a timely manner will have the consequence that the taxpayer forfeits the right to utilise the losses in future tax years for set off purposes. This consequence is triggered even for tax losses previously reported to the tax authorities. Further, it is noteworthy that the proposal is unclear on the possibility of correcting reported losses after the window for reporting has closed, in the case the taxpayer has forgotten existing losses or has not calculated the losses correctly.
The proposed 3 month window for reporting the existing tax losses has not yet opened. Accordingly, taxpayers cannot at this point report the losses to the tax authorities. All corporate taxpayers carrying losses forward for Danish tax purposes must therefore carefully monitor the status of the proposal and report the losses when the window opens. Due to the relatively short window for reporting and the significant consequence of a failure to report losses timely, taxpayers with losses carried forward for Danish tax purposes, should begin to gather information now and prepare documentation concerning all unutilised losses relating to 2002 and subsequent tax years as well as information on tax exempt restructurings completed during this period.