A new ruling by the National Tax Tribunal excludes the use of the expat tax scheme when a non-resident employee has been employed by the non-Danish head office prior to being employed by a Danish branch of the same group.
About the case
On 12 February 2018, a case on the Danish tax scheme for foreign researchers and key employees (the expat tax scheme) was brought before the National Tax Tribunal. The issue of the case was whether the Danish expat tax scheme contained in s. 48 E-F of the Danish Withholding Tax Act (kildeskatteloven) may be applied to employees who, prior to their employment with a Danish branch, had been employed at the foreign head-quarter.
The Danish expat tax scheme
The rules governing the expat tax scheme are stipulated in s. 48 E-F of the Danish Withholding Tax Act. Under this tax scheme, key employees and researchers recruited abroad and meeting various criteria have the opportunity to work in Denmark subject to beneficial tax treatment. The beneficial tax treatment may be upheld for a period of 84 months during which the non-Danish employees and researchers are subject to a special tax rate of 27% plus labour market contribution (AM tax) without deduction instead of regular income taxation.
The decision will be of great importance to foreign companies and their employees in situations where non-Danish companies operate in Denmark through a branch or a permanent establishment. The decision excludes the use of the expat tax scheme when an employee, prior to his or her employment with the Danish branch, is employed at the branch’s non-Danish head office.