Armslængdeundtagelsen i SEL § 11, stk. 1, 5. pkt.

Emil Peter Hansen

Student thesis: Master thesis

Abstract

This thesis concerns the arm’s length exception under the Danish thin capitalization rules. The Danish Corporation Tax Act section 11 contains an exception for the deduction limitation rules. This exemption consists of an arm’s length principle, comparable to the one found in the Danish Tax Assessment Act section 2. According to the arm’s length exception a taxpayer can avoid a deduction limitation, if it can be proven that “similar financing”, both in relation to size and terms, can be achieved from an independent source of finance. The loan is not considered as “similar financing” if the terms and size only can be achieved if an associated party guaranteed for the loan. Furthermore, the company must prove that the controlled loan is not obtained solely because of the controlling owner’s influence. The arm’s length principle in The Danish Tax Corporation Tax Act can therefore be seen as an extended arm’s length principle in relation to the arm’s length principle found in the Danish Tax Assessment Act section 2. However, both principles are based on the same economic circumstances in relation to the comparability factors. The comparability factors found in OECD’s Transfer Pricing Guidelines can therefore be used to conduct a comparability analysis. To document that the company can achieve similar financing from an independent source of finance either the CUP-method or a binding loan offer from an independent bank can be used. Both approaches require a high level of comparability between the controlled loan transaction and the uncontrolled loan transaction or independent loan offer. It can be difficult for the taxpayer to act according to the arm’s length exception, since it is based on an evaluation by the end of the income year for the taxpayer and therefore constitute an ex-post approach as opposed to the ax-ante approach found in the Danish Tax Assessment Act section 2.

EducationsMSc in Commercial Law, (Graduate Programme) Final Thesis
LanguageDanish
Publication date2013
Number of pages85