Three Domains of Holistic Tax Planning: The Universal Role of Pension Plans

Abstract

The foundation of the progressive tax system in Denmark is to be altered with effect from 2026, introducing an additional tax bracket targeting high-income individuals. Although also providing tax relief for approximately 565.000 taxpayers by dividing the current top-bracket into two, the effects exclusively pertain to one type of income, i.e. personal income. Consequently, a disparity might present itself in comparison to the marginal rates incurred on other types of income e.g. Capital income and Income from Shares.In this relation, the thesis aims to uncover tax planning instruments in current legislation, leveraging income type taxation and incentivizing a certain allocation of funds. With the purpose of constructing a comprehensive and holistic framework, the three domains of the PSL, SEL, and VSL are included representing both the individual and corporate entities. In conclusion, the Danish tax system proves itself as a complex and imbalanced playing field to navigate in tax planning. This is due to the existence of; (1) interlinked effects across income types and the progressive brackets; (2) deductions providing an asymmetric tax treatment; and (3) significant interdependence across various tax domains. Features favoring corporate entities above wage earners – regardless of domain i.e. SEL/VSL –allowing various instruments for tax planning. Besides general tax deferral, dividends paid out from Holding structures and Capital Return from the VSO provides considerable advantages. Namely, as being categorized and taxed as Income from Shares and Capital Income, respectively. However, tax domains that upon considering retirement are quite restricted, providing incentives for utilizing the universal role of pension plans in tax planning.