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Harmonisation of taxation gains and losses claims by private individuals

1 Feb 2010

On 27 January 2010, the Danish Minister of Taxation tabled Bill no. 112, which includes a proposal to harmonise the taxation of individuals holding claims and bonds issued in Danish kroner and claims in foreign currencies and to reduce the capital gains tax rate, and the like. The Bill is the result of an agreement reached between the Danish Government and the majority of the Danish Parliament to change the taxation of gains and losses on claims of private individuals. Bech Bruun, our Danish member investigate the key elements of the bill.

Key elements of the Bill:

  • Lifting of the tax exemption for gains on so-called "blue-stamped" claims and bonds (qualification as a blue-stamped claim/bond has required that certain minimum interest requirements were fulfilled when issued and that the bond is issued in (or tied to) Danish currency). Such gains will in the future be included in the capital income of the holder.
  • The introduction of a deduction in the capital income of the holder for losses claims/bonds issued in Danish currency.
  • Change of the general de minimis threshold for taking into account gains and losses on claims and bonds held by private individuals to DKK 2,000 (currently DKK 1,000).
  • Reduction of the maximum tax rate applying to positive net capital income over the next five years from 51.5% to 42%.

Moreover, the Bill proposes a number of amendments as a result of the derived effects on other areas, including certain changes in relation to investment funds.

The Bill follows an opening statement sent to Denmark from the EU Commission suggesting that the Danish tax distinction between certain claims and bonds issued in Danish currency and bonds issued in other currencies is in conflict with EU law. By eliminating the differences in the taxation of claims in Danish kroner and in foreign currencies, respectively, the proposed change will ensure compliance with existing EU legislation.

When fully effective, the Bill is expected to impact the investment dynamics of private individuals as it equalises the marginal tax rate applicable to private individuals on investments in debt securities with the marginal tax rate applicable to equity securities. Accordingly, only the underlying economic features (and not the tax treatment) should weigh in when private individuals make decisions on placement of their investment portfolios.

It is proposed, quite extraordinarily, that the Bill is to take effect as from the date of its tabling in order to give effect to the lifting of the minimum interest rule for claims acquired on the date of tabling of the Bill or later. An effective date for the Bill lying after the date of publication of the amendments would spur extraordinary acquisitions of currently blue-stamped bond claims and entail a significant loss of proceeds for the public sector.

Lifting of the tax exemption only applies to bonds issued or acquired as from today. Existing portfolios of blue-stamped bonds held by private individuals will continue to be exempt from tax according to existing rules for their current owners.

Taxand's Take

The proposed amendments will prima facie only affect the claims side. Hence, the taxation of gains and losses on the debts of private individuals in Danish kroner will remain unchanged.

The taxation of gains and losses on the debts of private individuals in foreign currencies will only be affected by the expansion and increase of the existing de minimis threshold: Today, any gain (and loss) on debts in foreign currencies is subject to tax if the net gain for the year plus the net gain on claims in foreign currencies exceed DKK 1,000. The applicable de minimis threshold will be expanded to also include gains (and losses) on claims in Danish kroner, and the amount will be increased to DKK 2,000.

Your Taxand contact for further queries is:
Anders Oreby Hansen
T. +45 72 27 36 02

Taxand's Take Author