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Tax Credit for R&D Expenses to Benefit Taxpayers


As of the income year 2012 Danish companies with R&D expenses will be given the possibility of utilising the company's R&D related deficit, if the proposed Danish 2012 Budget passes though the Danish Parliament in its current form. The proposed tax benefit being equal to the tax value of the R&D costs provides for a maximum tax credit of DKK 1.25 million per year (on a consolidated group basis). Taxand Denmark considers how the proposals of this R&D Tax Credit are likely to work and the types of companies that qualify.

Currently, Danish companies with a deficit can carry forward the deficit and use it to set off against any future earnings the company. The new possibility, presented in the proposed Danish 2012 Budget, provides companies with R&D related expenses, the option of receiving tax credits of 25% of the part of the company's yearly deficit which is related to the company's R&D. The tax credit is paid out in cash at the ordinary corporate income tax settlement date.

The type of R&D expenses which can qualify for a tax credit are; (i) R&D efforts, i.e the use of knowledge to develop new or improve existing material, (ii) applied research, i.e research with the goal of obtaining new knowledge about a predetermined subject, (iii) the gathering of R&D information and (iv) fundamental research, i.e the goal of obtaining new knowledge without it being about a predetermined subject. The Danish Ministry of Tax has stated that the definition of innovation contained in the OECD Oslo-manual cannot be used as a guiding pole, as the definition in the Oslo-manual is broader than the definition set forward in the proposal.

A company can receive tax credits of maximum DKK 1.25 million per year (on a consolidated group basis), corresponding to research and developments costs of DKK 5 million. If the company chooses to receive tax credits on their R&D deficit, that part of the deficit cannot be carried forward. The request by a company to receive tax credits must be submitted to the Danish Tax Authorities no later than by the submission of the company's income tax return.

Taxand's Take

The possibility offered by the proposed Danish 2012 Budget is a welcome opportunity for Danish companies to increase their level of R&D, strongly encouraged by the Danish Government. The opportunity is in particular relevant for Danish start-up companies. The possibility of a tax credit is expected to enter into force as of the income year 2012. This would mean that companies with R&D expenses dating back to May 2011 can be eligible to receive tax credits on these R&D expenses, depending on their income year.

Your Taxand contacts for further queries are:
Arne Riis
T. +45 72 27 33 22

Poul Erik Lytken
T. +45 72 27 35 31

Taxand's Take Author