The purpose of this thesis is to determine tax implications for companies in relation to interest deduction limitations in the Danish Corporate Tax Act, section 11, 11 B and 11 C. Furthermore, the purpose is to ex- amine possibilities of minimizing or avoiding interest deduction limitations. This thesis uses a legal methodology approach to examine the above.
Section 11 regulates the interest deduction limitation according to a thin capitalization principle. According to this, companies with a Debt-to-Equity ratio below 20 %, can not deduct interest regard- ing controlled debt that exceeds 10 million DKK. Controlled debt is defined as a loan issued or secured by a controlling party according to The Law of Assessments, section 2. This transaction is potentially not in accordance with the arms length principle.
Section 11 B regulates the interest deduction limit according to an interest deduction limit cap. Interest deduction limit cap is calculated by multiplying the standard interest rate with the company’s assets that generate taxable income. The result equals to the maximum need of financial costs. Costs that exceed this cap and exceed a minimum limit are not deductible.
Section 11 C regulates the interest deduction according to an EBIT limit. According to the EBIT limit, financial costs that exceeds 80 % of the company’s EBIT and a minimum limit are not deductible.
This thesis demonstrates that the tax implications differ according to the different sections. A company can be subject to one or multiple sections, which makes a calculation of the tax implications a complex procedure.
This thesis finds that opportunities to minimize or avoid interest deduction limitations arise from the interaction between the aforementioned sections. According to the sections, a concern has to calculate deductible interest cost on a consolidated basis and therefore a limitation applies to the consolidated statement. A concern is defined differently in the sections, which leads to the possibility of a potential exploitation of these different definitions. Furthermore, deprecations are also subject to different understandings in the sections, which leads to the possibility of minimizing interest deduction limitation by minimizing depreciations. This view is supported in the newly passed EU-directive which implements an EBITDA-approach. Lastly an opportunity to avoid interest deduction limitation arises if the company can document that transactions between controlled parties are in accordance with the arms length principle.
Finally, this thesis discusses the scope of the current sections in the Danish Corporate Tax Act. As a result of EU harmonization the scope has been expanded which leads to certain irregularities. The discussion also includes whether the current sections can be simplified by making adjustments in other areas of the Corporate Tax Act. This leads to a consideration of alternative methods, that is an operating-cost based approach or the CCCTB-directive.
|Uddannelser||Cand.merc.aud Regnskab og Revision, (Kandidatuddannelse) Afsluttende afhandling|