Katja Dyppel Weber, Michael Tell

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The flavor of the Danish tax system is a separate entity approach. As a result, the liability to pay taxes follows other liabilities of the entity, i.e. limited liability companies are considered separate and legal entities for tax purposes. For companies subject to group taxation, the corporate veil is however pierced in regard to liability of paid taxes, including withholding taxes. The purpose of this joint liability of taxes is to ensure an easier administration (the administration company is a “one-stop-shop” for the tax authorities and the other companies subject to group taxation) and to prevent abuse, e.g. by making foreign payments without withholding any taxes followed by liquidation. Besides this, no tendency to (further) pierce the veil of corporations from an overall tax policy perspective seems to exist.
The Danish tax system is based on the separate entity approach and, as such, the Danish rules on transfer pricing apply to all transactions between dependent parties, i.e. also transactions between domestic companies subject to mandatory joint taxation. In addition, the Danish domestic rules on income allocation to foreign and domestic permanent establishments are based on the AOA, where allocation is based on hypothesizing the PE as a separate and independent enterprise.
Under Danish tax law it is however recognized that controlled companies may have different incentives (and planning opportunities) than independent companies. Therefore, most anti-avoidance rules are only applicable for controlled companies, e.g. transfer pricing, CFC legislation, and thin capitalization. In addition, thresholds for being subject to tax benefits or restrictions are applied on a group basis, such thresholds being company size, revenue, asset base, EBITDA, losses etc. The purpose is to ensure that it is not possible to split up entities in order to obtain a tax benefit or avoid being subject to a restriction.
Original languageEnglish
Title of host publicationGroup Approach and Separate Entity Approach in Domestic and International Tax Law
Number of pages18
Place of PublicationRotterdam
PublisherInternational Fiscal Association
Publication date2022
Publication statusPublished - 2022
SeriesCahiers de Droit Fiscal International
Volume106 A

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