Beskatning af avance ved afståelse af afskrivningsberettiget ejendom: Herunder fordeling af overdragelsessummen

Simon Tornø Olesen & Tina Knudsholt

Student thesis: Diploma thesis

Abstract

The subject of this thesis is taxation of gains realized by selling depreciable real estate under the Danish Act on Amortisation and Depreciation (AL) as well as the Danish Act on Taxation of Profit from Sale of Real Property (EBL). The main focus of the thesis within the subject is the distribution among asset types agreed by seller and buyer and the consequences for the taxation of the seller as well as the future deductible depreciations for the buyer. In the thesis we account for the regulations in the two laws that are applicable when the taxation is calculated for the seller and have not included special laws regarding situations apart from trade that triggers taxation as well as the numerous regulations that only concern farms and agriculture. Furthermore we have chosen a practical approach to the describing parts of the thesis rather than a theoretical discussion of the laws. The purpose of this is to make the thesis as useful to a tax subject or advisor using the laws as possible instead of an extensive theoretical analysis with little practical application. The thesis is split into chapters. The first chapter of the actual thesis, chapter two, contains a description of the applicable laws in AL with a focus on the right of the owner to deduct depreciations from the taxable income and the calculation of these. Furthermore the chapter describes the rules on taxation of regained deducted depreciations upon a sale. The third chapter describes the situations in which EBL is used and account for the somewhat complicated rules in calculating gains or losses in accordance with that law. This entails regulations on how to assess the taxable sales price as well as the taxable acquisition price and additions and deductions to those as well as the possibility to delay taxation by replacing a gain in another property. The fourth chapter compares AL to EBL and highlights the differences and similarities in the taxation of gains entailed in the two laws. Furthermore the chapter contains a description of the implications on the calculation on real property gains taxes from gains or losses in accordance with AL. The fifth chapter contains examples of calculation of taxation upon a sale and an evaluation of the consequences to the seller of alterations to the distribution of the sales sum to the assets. The sixth chapter deals with the distribution of the sales price to the assets involved in the trade that the seller and the buyer have to agree on in accordance with AL. We have described the consequences of this distribution to both the buyer and the seller and evaluated their interests in connection with this distribution. The conclusion of this evaluation is that in most instances the seller and the buyer have clear and contradicting interests thus making the agreed distribution an effective instrument to ensure that taxation is assessed on basis of the real trade values of the assets. The chapter also describes the applicable rules for this distribution with a special focus on the Danish tax authorities’ right to correct the distribution and thereby the taxation. In doing this we have analyzed the decisions reached by the Danish courts on this subject in order to assess in what situations there is a risk to the parties in an agreement that this will be corrected by the tax authorities. We reached the conclusion that the risk of corrections is higher if there are no clear contradicting interests between the buyer and the seller but that the decision is down to the estimate of whether the agreed distribution is obviously incorrect. Although this is not a clearly defined rule there is a general margin of judgment of +/- 15 % in the distribution which highlights the fact that the valuation of these assets is not very exact and contain large estimates. In the conclusion we have ascertained that the two laws calculate taxation differently and that their interconnectedness means that buyer and seller have opposing interests in the distribution of the sales price. A change in the distribution favoring the buyer will lead to increased taxation of the seller. This conclusion indicates that both buyer and seller should pay close attention to the distribution in the agreement. Furthermore they should ensure that this is quite close to the real values of the assets in order to decrease the risk of correction by the Danish tax authorities. This means that the intention of the laws namely to ensure that assets are sold using the real values is upheld by the laws and that the interests of the seller and buyer means that they will be regulating the taxable and deductible values for each other when selling depreciable real property.

EducationsGraduate Diploma in Accounting and Financial Management, (Diploma Programme) Final Thesis
LanguageDanish
Publication date2011
Number of pages86