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New Bill attacks reverse hybrid structures


On 15 April 2008 bill L181 on reclassification of Danish transparent entities to eliminate cross-border tax asymmetries was submitted to Parliament by the Danish Minister of Taxation with no pre-announcement. The Bill is expected to be enacted in June 2008. It may severely affect structures already in place and may eliminate the future use of Danish transparent entities for tax planning purposes.

If, having read the attached article, you would like to discuss in more how detail how this could affect your organisation then please contact Anders Oreby Hansen of Bech-Bruun at

The Bill in brief

Danish transparent entities (partnerships) and Danish branches will be reclassified and for Danish tax purposes treated as non-transparent if:

1) more than 50 % of the votes or the capital interest in the transparent entity / branch is held directly by foreign investors; and
2) such foreign investors are tax domiciled in a foreign state that (a) considers the Danish entity as non-transparent or (b) does not have an exchange of information agreement with the Danish tax authorities.

Such Danish partnerships and branches are in the following collectively referred to as the "Hybrid Entity".

Impact of the reclassification:

o the investors will be deemed to have sold and the Hybrid Entity will be deemed to have acquired all assets and liabilities held by the Hybrid Entity at the time of the reclassification;

o the disposal of an ownership share in the Hybrid Entity will be treated as a sale of shares (which however is always tax-exempt when the shareholder is not a Danish resident);

o income realised by the Hybrid Entity will be subject to ordinary Danish corporation taxation (flat rate of 25 %);

o distributions made by the Hybrid Entity to the investors will be treated as dividends and may thus attract withholdings;

o subsequent cessation of the reclassification will be treated as a liquidation of the Hybrid Entity.This may result in capital gains taxation at the level of the Hybrid Entity and taxation of liquidation proceeds at the level of the investors.

The Bill is generally effective for fiscal years commencing on or after 15 April 2008.

Taxand's Take

Taxand's Take Author