Law 540 of 6. June 2007

Adisa Alic & Frederikke Korgaard

Student thesis: Master thesis

Abstract

The thesis analyses if the introduction of the Danish Selskabsskattelov (SEL) §§ 11 B and 11C has entailed consequences for other than private equity companies. Further we discuss whether the initiative can be considered as being in compliance with the principle of proportion according to EU Law. The effect is analyzed both from a legislative and economical paradigm. We initially define the methodology and theories applied, where after we have divided our thesis into two main chapters, a legal and an economic. The purpose of the first chapter, The Legal Analysis, is through a dogmatic approach to the accessible regulation and legal sources, to find the content of the regulation in SEL §§ 11 B and 11 C. The regulation is found to differentiate between subsidiaries placed in Denmark and in other EU member state. We find that only 20 % of share capital can be included in the calculation of the asset value in terms of tax, when the subsidiary is placed outside Denmark. This is in conflict with the principle of proportionality. We arrive at this conclusion by using a proportionality-test with three steps. First we access if the objective is legal, next if the means are suitable and last if the means are more intrusive and/or extensive than necessary. By applying our interpretation of the rulings from the European Court of Justice we conclude that SEL § 11 B is not a proportional measure. This is due to the fact that the means are more intrusive than necessary, since it does not only affect private equity funds, but also ordinary companies with a desire to expand to another member state. In chapter 2, The Economic Analysis, we attempt by combining financial theory with empirical data to conclude on the actual consequences of the regulation, hence this chapter is divided into two parts. In part 1, we introduce Modigliani & Miller´s theory on capital structure. We find using a few assumptions applied to a WACC optimization calculation that there indeed exist other motivational factors than tax when setting the financial policy on equity debt ratios. In part 2 we include an empirical study, based on financial data from Amadeus. Based on the companies’ 2007 reported asset base and net interest expenses, we conclude that a broad selection of Danish companies is affected with some concentration in a number of industries. We find that more than 30% of Danish real estate companies from Amadeus, with interest expenses above DKK 20m, are directly influenced on their future earnings.

EducationsMSc in Auditing, (Graduate Programme) Final Thesis
LanguageDanish
Publication date2008
Number of pages148